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The effect on inequality of changing one or two incomes

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  • Peter J. Lambert
  • Giuseppe Lanza
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    Abstract

    We examine the effect on inequality of increasing one income, and show that for two wide classes of indices a benchmark income level or position exists, dividing upper from lower incomes, such that if a lower income is raised, inequality falls, and if an upper income is raised, inequality rises. We provide a condition on the inequality orderings implicit in two inequality indices under which the one has a lower benchmark than the other for all unequal income distributions. We go on to examine the effect on the same indices of simultaneously increasing one income and decreasing another higher up the distribution, deriving results which quantify the extent of the 'bucket leak' which can be tolerated without negating the beneficial inequality effect of the transfer. Our results have implications for the inequality impacts of different income growth patterns, and of redistributive programmes (leaky or not), which are briefly discussed. Keywords: inequality index, inequality ordering, leaky bucket.

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    Bibliographic Info

    Paper provided by Institute for Fiscal Studies in its series IFS Working Papers with number W03/15.

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    Length: 27 pp
    Date of creation: Jul 2003
    Date of revision:
    Handle: RePEc:ifs:ifsewp:03/15

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    Cited by:
    1. Camacho Cuena, Eva & Neugebauer, Tibor & Seidl, Christian, 2005. "Compensating justice beats leaky buckets : an experimental investigation," Economics Working Papers 2005,06, Christian-Albrechts-University of Kiel, Department of Economics.
    2. Camacho Cuena, Eva & Neugebauer, Tibor & Seidl, Christian, 2004. "Leaky bucket Paradoxes in income inequality perceptions : an experimental investigation," Economics Working Papers 2004,04, Christian-Albrechts-University of Kiel, Department of Economics.
    3. Peter Lambert & Giuseppe Lanza, 2006. "The effect on inequality of changing one or two incomes," Journal of Economic Inequality, Springer, vol. 4(3), pages 253-277, December.
    4. W. Chiu, 2007. "Intersecting Lorenz Curves, the Degree of Downside Inequality Aversion, and Tax Reforms," Social Choice and Welfare, Springer, vol. 28(3), pages 375-399, April.

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