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Income distribution and inequality measurement: The problem of extreme values

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Author Info
Frank A. Cowell (STICERD - London School of Economics)
Emmanuel Flachaire () (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I)

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Abstract

We examine the statistical performance of inequality indices in the presence of extreme values in the data and show that these indices are very sensitive to the properties of the income distribution. Estimation and inference can be dramatically affected, especially when the tail of the income distribution is heavy, even when standard bootstrap methods are employed. However, use of appropriate semiparametric methods for modelling the upper tail can greatly improve the performance of even those inequality indices that are normally considered particularly sensitive to extreme values.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00176029_v1.

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Date of creation: 2007
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Publication status: Published, Journal of Econometrics, 2007, 141, 2, 1044-1072
Handle: RePEc:hal:cesptp:halshs-00176029_v1

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Keywords: inequality measures ; statistical performance ; robustness;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Frank A Cowell & Maria-Pia Victoria-Feser, 2001. "Robust Lorenz Curves: A Semiparametric Approach," STICERD - Distributional Analysis Research Programme Papers 50, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE. [Downloadable!]
  2. Chesher, Andrew & Schluter, Christian, 2002. "Welfare Measurement and Measurement Error," Review of Economic Studies, Blackwell Publishing, vol. 69(2), pages 357-78, April.
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  3. Peter Hall & Qiwei Yao, 2003. "Inference in Arch and Garch Models with Heavy--Tailed Errors," Econometrica, Econometric Society, vol. 71(1), pages 285-317, January. [Downloadable!] (restricted)
  4. Cowell, Frank A., 1989. "Sampling variance and decomposable inequality measures," Journal of Econometrics, Elsevier, vol. 42(1), pages 27-41, September. [Downloadable!] (restricted)
  5. Shorrocks, Anthony F & Foster, James E, 1987. "Transfer Sensitive Inequality Measures," Review of Economic Studies, Blackwell Publishing, vol. 54(3), pages 485-97, July. [Downloadable!] (restricted)
  6. Singh, S K & Maddala, G S, 1976. "A Function for Size Distribution of Incomes," Econometrica, Econometric Society, vol. 44(5), pages 963-70, September. [Downloadable!] (restricted)
  7. Braulke, Michael, 1983. "An approximation to the Gini coefficient for a population based on sparse information for sub-groups," Journal of Development Economics, Elsevier, vol. 12(1-2), pages 75-81. [Downloadable!] (restricted)
  8. McDonald, James B, 1984. "Some Generalized Functions for the Size Distribution of Income," Econometrica, Econometric Society, vol. 52(3), pages 647-63, May. [Downloadable!] (restricted)
  9. Schluter, Christian & Trede, Mark, 2002. "Tails of Lorenz curves," Journal of Econometrics, Elsevier, vol. 109(1), pages 151-166, July. [Downloadable!] (restricted)
  10. Cowell, Frank A & Victoria-Feser, Maria-Pia, 1996. "Robustness Properties of Inequality Measures," Econometrica, Econometric Society, vol. 64(1), pages 77-101, January. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Olympia Bover, 2008. "Wealth inequality and household structure: US vs. Spain," Banco de España Working Papers 0804, Banco de España. [Downloadable!]
    Other versions:
  2. repec:ese:iserwp: is not listed on IDEAS
  3. Juan Rodríguez, 2008. "Partial equality-of-opportunity orderings," Social Choice and Welfare, Springer, vol. 31(3), pages 435-456, October. [Downloadable!] (restricted)
  4. Juan Gabriel Rodríguez, 2007. "Partial and complete equality-of-opportunity orderings," Working Papers 70, ECINEQ, Society for the Study of Economic Inequality. [Downloadable!]
  5. Stephen P. Jenkins, 2007. "Inequality and the GB2 Income Distribution," IZA Discussion Papers 2831, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  6. Gustavo A. Marrero & Juan G. Rodríguez, 2009. "Inequality of Opportunity and Growth," Working Papers 2009-24, FEDEA. [Downloadable!]
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