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Robust Inequality Comparisons

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  • Aaberge, Rolf

    ()
    (Statistics Norway)

  • Mogstad, Magne

    ()
    (University of Chicago)

Abstract

This paper is concerned with the problem of ranking Lorenz curves in situations where the Lorenz curves intersect and no unambiguous ranking can be attained without introducing weaker ranking criteria than first-degree Lorenz dominance. To deal with such situations Aaberge (2009) introduced two alternative sequences of nested dominance criteria for Lorenz curves which was proved to characterize two separate systems of nested subfamilies of inequality measures. This paper uses the obtained characterization results to arrange the members of two different generalized Gini families of inequality measures into subfamilies according to their relationship to Lorenz dominance of various degrees. Since the various criteria of higher degree Lorenz dominance provide convenient computational methods, these results can be used to identify the largest subfamily of the generalized Gini families and thus the least restrictive social preferences required to reach unambiguous ranking of a set of Lorenz curves. From the weight-functions of these inequality measures we obtain intuitive interpretations of higher degree Lorenz dominance, which generally has been viewed as difficult to interpret because they involve assumptions about third and higher derivatives. To demonstrate the usefulness of these methods for empirical applications, we examine the time trend in income and earnings inequality of Norwegian males during the period 1967-2005.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4769.

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Length: 26 pages
Date of creation: Feb 2010
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Publication status: published in: Journal of Economic Inequality, 2011, 9 (3), 353-371
Handle: RePEc:iza:izadps:dp4769

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Keywords: generalized Gini families of inequality measures; Gini coefficient; rank-dependent measures of inequality; Lorenz dominance; Lorenz curve;

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References

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  1. Rolf Aaberge, 2000. "Ranking intersectiong Lorenz Curves," ICER Working Papers, ICER - International Centre for Economic Research 08-2000, ICER - International Centre for Economic Research.
  2. Rolf Aaberge & Anthony B. Atkinson, 2008. "Top Incomes in Norway," Discussion Papers, Research Department of Statistics Norway 552, Research Department of Statistics Norway.
  3. Weymark, John A., 1981. "Generalized gini inequality indices," Mathematical Social Sciences, Elsevier, Elsevier, vol. 1(4), pages 409-430, August.
  4. Shorrocks, Anthony F & Foster, James E, 1987. "Transfer Sensitive Inequality Measures," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 54(3), pages 485-97, July.
  5. Schechtman, Edna & Shelef, Amit & Yitzhaki, Shlomo & Zitikis, Ričardas, 2008. "Testing Hypotheses About Absolute Concentration Curves And Marginal Conditional Stochastic Dominance," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 24(04), pages 1044-1062, August.
  6. Yaari, Menahem E, 1987. "The Dual Theory of Choice under Risk," Econometrica, Econometric Society, Econometric Society, vol. 55(1), pages 95-115, January.
  7. Rolf Aaberge, 2006. "Asymptotic Distribution Theory of Empirical Rank-dependent measures of Inequity," ICER Working Papers, ICER - International Centre for Economic Research 12-2006, ICER - International Centre for Economic Research.
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  10. Rolf Aaberge & Manudeep Bhuller & Audun Langørgen & Magne Mogstad, 2010. "The distributional impact of public services when needs differ," Discussion Papers, Research Department of Statistics Norway 621, Research Department of Statistics Norway.
  11. Rolf Aaberge & Audun Langørgen & Magne Mogstad & Marit Østensen, 2008. "The Impact of Local Public Services and Geographical Cost of Living Differences on Poverty Estimates," Discussion Papers, Research Department of Statistics Norway 551, Research Department of Statistics Norway.
  12. A. Atkinson, 2003. "Multidimensional Deprivation: Contrasting Social Welfare and Counting Approaches," Journal of Economic Inequality, Springer, Springer, vol. 1(1), pages 51-65, April.
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  14. Donaldson, David & Weymark, John A., 1980. "A single-parameter generalization of the Gini indices of inequality," Journal of Economic Theory, Elsevier, Elsevier, vol. 22(1), pages 67-86, February.
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  16. Peter Gottschalk & Timothy M. Smeeding, 1997. "Cross-National Comparisons of Earnings and Income Inequality," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 35(2), pages 633-687, June.
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  18. Rolf Aaberge, 2000. "Characterizations of Lorenz curves and income distributions," Social Choice and Welfare, Springer, Springer, vol. 17(4), pages 639-653.
  19. Yaari, Menahem E., 1988. "A controversial proposal concerning inequality measurement," Journal of Economic Theory, Elsevier, Elsevier, vol. 44(2), pages 381-397, April.
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  21. Ingvild Almås & Tarjei Havnes & Magne Mogstad, 2010. "Baby Booming Inequality? Demographic Change and Earnings Inequality in Norway, 1967-2000," CESifo Working Paper Series 3200, CESifo Group Munich.
  22. Claudio Zoli, 1999. "Intersecting generalized Lorenz curves and the Gini index," Social Choice and Welfare, Springer, Springer, vol. 16(2), pages 183-196.
  23. Donaldson, David & Weymark, John A., 1983. "Ethically flexible gini indices for income distributions in the continuum," Journal of Economic Theory, Elsevier, Elsevier, vol. 29(2), pages 353-358, April.
  24. Kolm, Serge-Christophe, 1976. "Unequal inequalities. II," Journal of Economic Theory, Elsevier, Elsevier, vol. 13(1), pages 82-111, August.
  25. Erik Fjærli & Rolf Aaberge, 2000. "Tax Reforms, Dividend Policy and Trends in Income Inequality Empirical Evidence based on Norwegian Data," Discussion Papers, Research Department of Statistics Norway 284, Research Department of Statistics Norway.
  26. Yitzhaki, Shlomo, 1983. "On an Extension of the Gini Inequality Index," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(3), pages 617-28, October.
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Cited by:
  1. Almas, Ingvild & Havnes, Tarjei & Mogstad, Magne, 2011. "Baby Booming Inequality? Demographic Change and Earnings Inequality in Norway, 1967-2000," CEPR Discussion Papers, C.E.P.R. Discussion Papers 8393, C.E.P.R. Discussion Papers.

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