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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Paper provided by Institute for Fiscal Studies in its series IFS Working Papers with number
W03/15.
Length: 27 pp Date of creation: Jul 2003 Date of revision: Handle: RePEc:ifs:ifsewp:03/15
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Find related papers by JEL classification: D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
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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.:
Chakravarty, Satya R, 1988.
"Extended Gini Indices of Inequality,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(1), pages 147-56, February.
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