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Evaluating Real World Income Distributions behind the Veil of Ignorance - How Risk Averse do you have to be to Prefer Europe over the US?

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  • Alfons Weichenrieder
  • Tasneem Zafar

Abstract

The paper uses a veil of ignorance approach and income distribution data of developed countries to arrive at inequality corrected income rankings. While a risk neutral individual (based on year 2000 data) would have preferred to be born into the US rather than any European country in our sample except Luxembourg, a coefficient of relative risk aversion of 2 suffices to make several European countries look preferable. The paper also sheds light on the risk corrected average income on a gender basis and scans for times of diminished expectations, i.e. periods where the expected utility of being born into a country has reduced over time.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2011/wp-cesifo-2011-11/cesifo1_wp3632.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3632.

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Date of creation: 2011
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Handle: RePEc:ces:ceswps:_3632

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Related research

Keywords: income distribution; veil of ignorance; cross country comparison;

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  1. Sinn, Hans-Werner, 1995. "A Theory of the Welfare State," CEPR Discussion Papers 1278, C.E.P.R. Discussion Papers.
  2. Lancaster, Geoffrey & Ray, Ranjan & Valenzuela, Maria Rebecca, 1999. "A Cross-Country Study of Equivalence Scales and Expenditure Inequality on Unit Record Household Budget Data," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 45(4), pages 455-82, December.
  3. Phipps, Shelley & Garner, Thesia I, 1994. "Are Equivalence Scales the Same for the United States and Canada?," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 40(1), pages 1-17, March.
  4. Milton Friedman, 1953. "Choice, Chance, and the Personal Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 61, pages 277.
  5. Haddad, Lawrence & Kanbur, Ravi, 1989. "How serious is the neglect of intrahousehold inequality ?," Policy Research Working Paper Series 296, The World Bank.
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