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An Index of Inequality: With Applications to Horizontal Equity and Social Mobility

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  • Mervyn A. King
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    Abstract

    An index of Inequality is constructed which decomposes into two components, corresponding to vertical and "horizontal" equity respectively. Horizontal equity Is defined in terms of changes in the ordering of a distribution. The proposed index is a function to two inequality aversion parameters. One empirical application is for comparison of a pre-tax distribution with a post-tax distribution, and an example of this is given for the distribution of incomes in the UK in 1977. There is a trade-off between "horizontal"and vertical equity, and for particular combinations of the inequality aversion parameters the original distribution will be preferred to the final distribution. The paper concludes with an application of the proposed index to a model of optimal taxation.

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    File URL: http://www.nber.org/papers/w0468.pdf
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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0468.

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    Date of creation: Mar 1983
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    Handle: RePEc:nbr:nberwo:0468

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    1. Rosen, Harvey S., 1976. "A methodology for evaluating tax reform proposals," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 105-121.
    2. Allingham, M. G., 1975. "Towards an ability tax," Journal of Public Economics, Elsevier, vol. 4(4), pages 361-376, November.
    3. Cowell, Frank A, 1980. "On the Structure of Additive Inequality Measures," Review of Economic Studies, Wiley Blackwell, vol. 47(3), pages 521-31, April.
    4. Rosen, Harvey S, 1978. "An Approach to the Study of Income, Utility, and Horizontal Equity," The Quarterly Journal of Economics, MIT Press, vol. 92(2), pages 307-22, May.
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