The Effect on Inequality of Changing One or Two Incomes
AbstractWe 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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Bibliographic InfoPaper provided by University of Oregon Economics Department in its series University of Oregon Economics Department Working Papers with number 2003-15.
Date of creation: 10 Jun 2003
Date of revision: 10 Sep 2003
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inequality index; inequality ordering; leaky bucket;
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