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On the measurement of long-term income inequality and income mobility

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  • Rolf Aaberge

    ()
    (Research Department, Statistics Norway)

  • Magne Mogstad

    (Research Department, Statistics Norway)

Abstract

This paper proposes a two-step aggregation method for measuring long-term income inequality and income mobility, where mobility is defined as an equalizer of long-term income. The first step consists of aggregating the income stream of each individual into a measure of permanent income, which accounts for the costs associated with income fluctuations and allows for credit market imperfections. The second step aggregates permanent incomes across individuals into measures of social welfare, inequality and mobility. To this end, we employ an axiomatic approach to justify the introduction of a generalized family of rank-dependent measures of inequality, where the distributional weights, as opposed to the Mehran-Yaari family, depend on income shares as well as on population shares. Moreover, a subfamily is shown to be associated with social welfare functions that have intuitively appealing interpretations. Further, the generalized family of inequality measures provides new interpretations of the Gini-coefficient.

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Bibliographic Info

Paper provided by ECINEQ, Society for the Study of Economic Inequality in its series Working Papers with number 156.

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Length: 37 pages
Date of creation: 2010
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Handle: RePEc:inq:inqwps:ecineq2010-156

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Keywords: Income inequality; income mobility; social welfare; the Gini coefficient; permanent income; credit market; annuity.;

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Citations

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Cited by:
  1. Aaberge, Rolf & Mogstad, Magne & Peragine, Vito, 2010. "Measuring Long-Term Inequality of Opportunity," IZA Discussion Papers 4714, Institute for the Study of Labor (IZA).
  2. John Creedy & Elin Halvorsen & Thor O. Thoresen, 2011. "Inequality Comparisons in a Multi-Period Framework: The Role of Alternative Welfare Metrics," Department of Economics - Working Papers Series, The University of Melbourne 1127, The University of Melbourne.
  3. Sami Bibi & Jean-Yves Duclos & Abdelkrim Araar, 2011. "Mobility, Taxation and Welfare," Cahiers de recherche, CIRPEE 1114, CIRPEE.
  4. Rolf Aaberge & A B Atkinson, 2013. "The median as watershed," Discussion Papers, Research Department of Statistics Norway 749, Research Department of Statistics Norway.

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