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A new framework of measuring inequality: Variable equivalence scales and group-specific well-being limits. Sensitivity findings for German personal income distribution 1995-2009

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  • Jürgen Faik

    ()
    (University of Lueneburg)

Abstract

The paper examines sensitivity influences on the German personal income distribution in a time-series perspective as well as in a methodically broad manner. The author discusses the following issues: (1) For the first time, (reference) income-dependent, so-called variable equivalence scales are explicitly and extensively applied in a distributional analysis of German data which causes significant increases of income inequality compared with income-independent, constant equivalence scales. (2) Concerning different demarcations of income areas the pattern of income inequality in Germany 1995-2009 is not distinctively changed in the several variants considered. (3) For three alternative inequality indicators out of the class of Generalized Entropy indicators (mean logarithmic deviation, one of Theil’s measures of entropy, and normalized coefficient of variation), the patterns of income inequality over time are nearly the same. (4) Regarding current monthly household net income versus yearly household net income of the previous year, different patterns with respect to income inequality occur during the ob-served period of time. Especially in the first decade of the 21st century the corresponding pat-terns differ from each other. In a further step the new approach related to income distribution, which incorporates variable equivalence scales, is applied to socio-demographic stratification to exemplarily demonstrate the power of this new approach. All in all, the analyses of the paper refer to the necessity of a rigorous methodological foundation of distributional studies, especially concerning the selection of a set of (preferably variable) equivalence scales, the choice of the inequality indicator, and – not least – of the income variable.

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File URL: http://www.ecineq.org/milano/WP/ECINEQ2011-219.pdf
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Bibliographic Info

Paper provided by ECINEQ, Society for the Study of Economic Inequality in its series Working Papers with number 219.

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Length: 23 pages
Date of creation: 2011
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Handle: RePEc:inq:inqwps:ecineq2011-219

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Keywords: Personal income distribution; equivalence scales; inequality;

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  1. Cowell, Frank A., 1980. "Generalized entropy and the measurement of distributional change," European Economic Review, Elsevier, vol. 13(1), pages 147-159, January.
  2. Bradbury, Bruce, 1994. "Measuring the Cost of Children," Australian Economic Papers, Wiley Blackwell, vol. 33(62), pages 120-38, June.
  3. Donaldson, David & Pendakur, Krishna, 2004. "Equivalent-expenditure functions and expenditure-dependent equivalence scales," Journal of Public Economics, Elsevier, vol. 88(1-2), pages 175-208, January.
  4. Buhmann, Brigitte, et al, 1988. "Equivalence Scales, Well-Being, Inequality, and Poverty: Sensitivity Estimates across Ten Countries Using the Luxembourg Income Study (LIS) Database," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 34(2), pages 115-42, June.
  5. Jürgen Faik, 2011. "A Behaviouristic Approach for Measuring Poverty: The Decomposition Approach ; Empirical Illustrations for Germany 1995-2009," SOEPpapers on Multidisciplinary Panel Data Research 383, DIW Berlin, The German Socio-Economic Panel (SOEP).
  6. Olga Cantó & Coral del Río & Carlos Gradín, . "Poverty Statics And Dynamics: Does The Accounting Period Matter?," Working Papers 22-02 Classification-JEL , Instituto de Estudios Fiscales.
  7. Aaberge, Rolf & Melby, Ingrid, 1998. "The Sensitivity of Income Inequality to Choice of Equivalence Scales," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 44(4), pages 565-69, December.
  8. Clark, Andrew E. & Oswald, Andrew J., 1996. "Satisfaction and comparison income," Journal of Public Economics, Elsevier, vol. 61(3), pages 359-381, September.
  9. Jürgen Faik, 2011. "Der Zerlegungs-Ansatz – ein alternativer Vorschlag zur Messung von Armut," AStA Wirtschafts- und Sozialstatistisches Archiv, Springer, vol. 4(4), pages 293-315, January.
  10. Udo Ebert & Patrick Moyes, 2003. "Equivalence Scales Reconsidered," Econometrica, Econometric Society, vol. 71(1), pages 319-343, January.
  11. Coulter, Fiona A E & Cowell, Frank A & Jenkins, Stephen P, 1992. "Equivalence Scale Relativities and the Extent of Inequality and Poverty," Economic Journal, Royal Economic Society, vol. 102(414), pages 1067-82, September.
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