  Personal income distributions in Japan are analyzed empirically and a simple
stochastic model of the income process is proposed. Based on empirical facts,
we propose a minimal two-factor model. Our model of personal income consists of
an asset accumulation process and a wage process. We show that these simple
processes can successfully reproduce the empirical distribution of income. In
particular, the model can reproduce the particular transition of the
distribution shape from the middle part to the tail part. This model also
allows us to derive the tail exponent of the distribution analytically.
