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Inequality Comparisons in a Multi-Period Framework: The Role of Alternative Welfare Metrics

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  • John Creedy
  • Elin Halvorsen
  • Thor O. Thoresen

Abstract

This paper considers the use of alternative welfare metrics in evaluations of income inequality in a multi-period context. Using Norwegian longitudinal income data, it is found, as in many studies, that inequality is lower when each individual’s annual average income is used as welfare metric, compared with the use of a single-period accounting framework. However, this result does not necessarily hold when aversion to income fluctuations is introduced. Furthermore, when actual incomes are replaced by expected incomes (conditional on an initial period),using a model of income dynamics, higher values of inequality over longer periods are typically found, although comparisons depend on inequality and variability aversion parameters. The results are strongly influenced by the observed high degree of systematic regression towards the (geometric) mean, combined with a large extent of individual unexpected effects.

Suggested Citation

  • 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 1127, The University of Melbourne.
  • Handle: RePEc:mlb:wpaper:1127
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    Cited by:

    1. Ilpo Suoniemi, 2012. "Income mobility, income risk and age – Finnish experiences in 1995–2008," Working Papers 276, Työn ja talouden tutkimus LABORE, The Labour Institute for Economic Research LABORE.
    2. Markus Jäntti & Stephen P. Jenkins, 2013. "Income Mobility," SOEPpapers on Multidisciplinary Panel Data Research 607, DIW Berlin, The German Socio-Economic Panel (SOEP).
    3. Ilpo Suoniemi, 2013. "Permanent income, redistribution and income risk: Empirical analysis on the role of age and social protection benefits (ESSPROS) using Finnish Panel data in 1995–2008," Working Papers 286, Työn ja talouden tutkimus LABORE, The Labour Institute for Economic Research LABORE.
    4. Ilpo Suoniemi, 2015. "Income mobility, dynamics and risk over the working life: income insurance from taxes and cash transfers in 2001–2008," Working Papers 300, Työn ja talouden tutkimus LABORE, The Labour Institute for Economic Research LABORE.
    5. Elin Halvorsen & Thor O. Thoresen, 2021. "Distributional Effects of a Wealth Tax under Lifetime‐Dynastic Income Concepts," Scandinavian Journal of Economics, Wiley Blackwell, vol. 123(1), pages 184-215, January.
    6. Michael Savage, 2016. "Poorest Made Poorer? Decomposing income losses at the bottom of the income distribution during the Great Recession," Papers WP528, Economic and Social Research Institute (ESRI).

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    More about this item

    Keywords

    income mobility; welfare evaluations; relative mobility process;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

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