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Income inequality and price elasticity of market demand: the case of crossing Lorenz curves

Author

Listed:
  • Marat Ibragimov

    (Kazan (Volga Region) Federal University)

  • Rustam Ibragimov

    (Imperial College Business School
    Innopolis University)

  • Paul Kattuman

    (University of Cambridge)

  • Jun Ma

    (University of Cambridge)

Abstract

This paper extends Ibragimov and Ibragimov (Econ Theory 32:579–587, 2007) in which the effect of changes income inequality on the price elasticity of market demand is characterized for the class of income distribution changes occurring through non-intersecting Lorenz curve shifts. We derive sufficient conditions for increase/decrease in price elasticity of market demand, under general changes in income distribution, allowing Lorenz curves to intersect as they shift. We conclude by drawing out implications of different types of tax policy changes for demand elasticity.

Suggested Citation

  • Marat Ibragimov & Rustam Ibragimov & Paul Kattuman & Jun Ma, 2018. "Income inequality and price elasticity of market demand: the case of crossing Lorenz curves," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 65(3), pages 729-750, May.
    • Handle: RePEc:spr:joecth:v:65:y:2018:i:3:d:10.1007_s00199-017-1037-0
    DOI: 10.1007/s00199-017-1037-0
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    References listed on IDEAS

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    1. Anthony B. Atkinson & Thomas Piketty & Emmanuel Saez, 2011. "Top Incomes in the Long Run of History," Journal of Economic Literature, American Economic Association, vol. 49(1), pages 3-71, March.
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    Cited by:

    1. John Ogwang & Dennis Obote & Ursula Abwot, 2021. "A Technical Note on New Applications of Lorenz Curves in Business Based on Pareto Principles," International Journal of Applied Economics, Finance and Accounting, Online Academic Press, vol. 9(2), pages 76-81.
    2. James Davies & Michael Hoy & Lin Zhao, 2022. "Revisiting comparisons of income inequality when Lorenz curves intersect," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 58(1), pages 101-109, January.

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    More about this item

    Keywords

    Income distribution; Inequality; Downside inequality aversion; Transfer sensitivity; Market demand elasticity; Direct tax policy;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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