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Income redistribution going awry: The reversal power of the concern for relative deprivation

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  • Sorger, Gerhard
  • Stark, Oded

Abstract

We demonstrate that a rank-preserving transfer from a richer individual to a poorer individual can exacerbate income inequality (when inequality is measured by the Gini coefficient). This happens when individuals’ preferences depend negatively not only on work time (effort) but also on low relative income. It is rigorously shown that the set of preference profiles that gives rise to this perverse effect of a transfer on inequality is a non-empty open subset of all preference profiles. A robust example illustrates this result.

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Bibliographic Info

Paper provided by University of Bonn, Center for Development Research (ZEF) in its series Discussion Papers with number 142407.

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Date of creation: Dec 2012
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Handle: RePEc:ags:ubzefd:142407

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Keywords: A rank-preserving inequality-narrowing transfer; The Gini coefficient; Low relative income; Relative deprivation; Exacerbated inequality; Consumer/Household Economics; Financial Economics; Institutional and Behavioral Economics; Labor and Human Capital; Productivity Analysis; D30; D31; D63;

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Cited by:
  1. Stark, Oded & Jakubek, Marcin & Falniowski, Fryderyk, 2013. "Reconciling the Rawlsian and the utilitarian approaches to the maximization of social welfare," University of Tuebingen Working Papers in Economics and Finance 65, University of Tuebingen, Faculty of Economics and Social Sciences.
  2. Stark, Oded, 2013. "On the economics of others," University of Tuebingen Working Papers in Economics and Finance 62, University of Tuebingen, Faculty of Economics and Social Sciences.

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