The Impossibility of a Just Pigouvian
AbstractAn 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 InfoPaper provided by ECINEQ, Society for the Study of Economic Inequality in its series Working Papers with number 69.
Length: 15 pages
Date of creation: 2007
Date of revision:
Income distribution; Intermediate inequality indices; Unit-consistency;
Other versions of this item:
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
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