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The Impossibility of a Just Pigouvian

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  • Casilda Lasso de la Vega

    (University of the Basque Country)

  • Christian Seidl

    (University of Kiel)

Abstract

An income inequality measure satisfies the Pigou-Dalton transfer principle if progressive transfers decrease income inequality. When transfers cause transaction costs, one can trace out the maximum leakage such that the transfer pays at the margin. An income inequality measure is leaky-bucket consistent if the transaction costs of a transfer are neither negative nor do the exceed the amount of the transfer. We show that the Pigou-Dalton transfer principle and leaky-bucket consistency are not reconcilable. Experimental research has shown that subjects’ behavior exhibit graded compensating justice, that is compensating income changes which maintain the degree of income inequality and point in the same direction should provide less income compensation for richer than for poorer income recipients. We show also that the Pigou-Dalton transfer principle and graded compensating justice are not reconcilable.

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Bibliographic Info

Paper provided by ECINEQ, Society for the Study of Economic Inequality in its series Working Papers with number 69.

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Length: 15 pages
Date of creation: 2007
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Handle: RePEc:inq:inqwps:ecineq2007-69

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Keywords: Income distribution; Intermediate inequality indices; Unit-consistency;

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  1. Buhong Zheng, 2007. "Unit-Consistent Decomposable Inequality Measures," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 74(293), pages 97-111, 02.
  2. Harrison, Elizabeth & Seidl, Christian, 1994. " Perceptional Inequality and Preferential Judgements: An Empirical Examination of Distributional Axioms," Public Choice, Springer, Springer, vol. 79(1-2), pages 61-81, April.
  3. Bossert, Walter & Pfingsten, Andreas, 1990. "Intermediate inequality: concepts, indices, and welfare implications," Mathematical Social Sciences, Elsevier, Elsevier, vol. 19(2), pages 117-134, April.
  4. Kolm, Serge-Christophe, 1976. "Unequal inequalities. I," Journal of Economic Theory, Elsevier, Elsevier, vol. 12(3), pages 416-442, June.
  5. Blackorby, Charles & Donaldson, David, 1978. "Measures of relative equality and their meaning in terms of social welfare," Journal of Economic Theory, Elsevier, Elsevier, vol. 18(1), pages 59-80, June.
  6. Coral del RÎo & Javier Ruiz-Castillo, 2000. "Intermediate inequality and welfare," Social Choice and Welfare, Springer, Springer, vol. 17(2), pages 223-239.
  7. Amiel, Yoram & Cowell, Frank A., 1992. "Measurement of income inequality : Experimental test by questionnaire," Journal of Public Economics, Elsevier, Elsevier, vol. 47(1), pages 3-26, February.
  8. Christian Seidl, 2001. "Inequality measurement and the leaky-bucket paradox," Economics Bulletin, AccessEcon, vol. 4(6), pages 1-7.
  9. Kolm, Serge-Christophe, 1976. "Unequal inequalities. II," Journal of Economic Theory, Elsevier, Elsevier, vol. 13(1), pages 82-111, August.
  10. Peter Lambert & Giuseppe Lanza, 2006. "The effect on inequality of changing one or two incomes," Journal of Economic Inequality, Springer, Springer, vol. 4(3), pages 253-277, December.
  11. Dagum, Camilo, 1990. "On the relationship between income inequality measures and social welfare functions," Journal of Econometrics, Elsevier, Elsevier, vol. 43(1-2), pages 91-102.
  12. Eva Camacho-Cuena & Tibor Neugebauer & Christian Seidl, 2007. "Leaky Buckets Versus Compensating Justice: An Experimental Investigation," Working Papers 74, ECINEQ, Society for the Study of Economic Inequality.
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Cited by:
  1. Traub, Stefan & Seidl, Christian & Schmidt, Ulrich, 2009. "An experimental study on individual choice, social welfare, and social preferences," European Economic Review, Elsevier, Elsevier, vol. 53(4), pages 385-400, May.

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