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The Effect on Inequality of Changing One or Two Incomes

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Author Info
Peter J. Lambert () (University of Oregon Economics Department and University of York)
Giuseppe Lanza (Universita di Palermo)
Abstract

We examine the effect on inequality of increasing one income, and show that for two wide classes of indices a benchmark income level or position exists, dividing upper from lower incomes, such that if a lower income is raised, inequality falls, and if an upper income is raised, inequality rises. We provide a condition on the inequality orderings implicit in two inequality indices under which the one has a lower benchmark than the other for all unequal income distributions. We go on to examine the effect on the same indices of simultaneously increasing one income and decreasing another higher up the distribution, deriving results which quantify the extent of the "bucket leak" which can be tolerated without negating the beneficial inequality effect of the transfer. Our results have implications for the inequality impacts of different income growth patterns, and of redistributive programmes (leaky or not), which are briefly discussed.

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File URL: http://economics.uoregon.edu/papers/UO-2003-15_Lambert_Effect_on_inequality.pdf
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Paper provided by University of Oregon Economics Department in its series University of Oregon Economics Department Working Papers with number 2003-15.

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Length: 23
Date of creation: 10 Jun 2003
Date of revision: 10 Sep 2003
Handle: RePEc:ore:uoecwp:2003-15

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Keywords: inequality index inequality ordering leaky bucket

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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    Other versions:
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  1. Camacho-Cuena, Eva & Neugebauer, Tibor & Seidl, Christian, 2004. "Leaky bucket Paradoxes in income inequality perceptions : an experimental investigation," Economics working papers 2004,04, Christian-Albrechts-University of Kiel, Department of Economics. [Downloadable!]
  2. Camacho-Cuena, Eva & Neugebauer, Tibor & Seidl, Christian, 2005. "Compensating justice beats leaky buckets : an experimental investigation," Economics working papers 2005,06, Christian-Albrechts-University of Kiel, Department of Economics. [Downloadable!]
  3. Peter J. Lambert & Andre Decoster, 2004. "The Gini Coefficient Reveals More," University of Oregon Economics Department Working Papers 2004-18, University of Oregon Economics Department, revised 05 Dec 2004. [Downloadable!]
    Other versions:
  4. W. Chiu, 2007. "Intersecting Lorenz Curves, the Degree of Downside Inequality Aversion, and Tax Reforms," Social Choice and Welfare, Springer, vol. 28(3), pages 375-399, April. [Downloadable!] (restricted)
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