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Social Welfare Analysis of Income Distributions: Ranking Income Distributions with Lorenz Curves

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  • Bellù, Lorenzo Giovanni
  • Liberati, Paolo

Abstract

This paper illustrates how Lorenz Curves can be used to identify the best income distribution on social welfare grounds, within a set of alternative income distributions generated by different policy options. After highlighting some drawbacks of using specific functional forms of the Social Welfare Function (SWF) to infer welfare judgments, the rationale for using Lorenz Curves to rank income distributions is provided in a step-by-step procedure and is illustrated with some simple numerical examples. This module also points out the limitations of Lorenz dominance and highlights how, in some circumstances, it is necessary to use Generalised Lorenz (GL) Curves.

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File URL: http://mpra.ub.uni-muenchen.de/30103/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 30103.

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Date of creation: 01 Nov 2005
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Handle: RePEc:pra:mprapa:30103

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Keywords: lorenz curve; social welfare function; generalised lorenz curves; income distributions; inequality; poverty; lorenz dominance; atkinsons theorem;

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