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Decomposing Inequality and Social Welfare Changes: The Use of Alternative Welfare Metrics

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  • Creedy, John
  • Hérault, Nicolas

Abstract

This paper presents two ‘non-welfarist’ approaches and one ‘welfarist’ approach to decompose changes in inequality and social welfare into three components: population, tax policy and labour supply effects. As an illustration, changes in inequality and in values of a social welfare function in Australia between 2001 and 2006 are examined. Inequality is first defined in non-welfarist terms as a function of disposable income: the independent judge places no value on leisure. Then this is modified to allow for evaluations using a weighted geometric mean of disposable income and leisure. This is seen to modify the evaluation of changes in important ways. Furthermore, the results are shown to be quite different from those obtained using a ‘welfarist’ evaluation in terms of money metric utility, where separate behavioural effects cannot be isolated.

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  • Creedy, John & Hérault, Nicolas, 2012. "Decomposing Inequality and Social Welfare Changes: The Use of Alternative Welfare Metrics," Working Paper Series 18714, Victoria University of Wellington, Chair in Public Finance.
    • Handle: RePEc:vuw:vuwcpf:18714
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    Cited by:

    1. Robin Jessen, 2019. "Why has Income Inequality in Germany Increased From 2002 to 2011? A Behavioral Microsimulation Decomposition," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 65(3), pages 540-560, September.
    2. André Decoster & Peter Haan, 2015. "Empirical welfare analysis with preference heterogeneity," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(2), pages 224-251, April.
    3. Figari, Francesco & Paulus, Alari & Sutherland, Holly, 2014. "Microsimulation and policy analysis," ISER Working Paper Series 2014-23, Institute for Social and Economic Research.
    4. John Creedy & Jesse Eedrah, 2014. "The Role of Value Judgements in Measuring Inequality," Treasury Working Paper Series 14/13, New Zealand Treasury.
    5. Creedy, John, 2013. "Alternative Distributions for Inequality and Poverty Comparisons," Working Paper Series 18784, Victoria University of Wellington, Chair in Public Finance.
    6. John Creedy & Jesse Eedrah, 2016. "Income redistribution and changes in inequality in New Zealand from 2007 to 2011: Alternative distributions and value judgements," New Zealand Economic Papers, Taylor & Francis Journals, vol. 50(2), pages 129-152, August.
    7. John Creedy, 2013. "Alternative Distributions for Inequality and Poverty Comparisons," Treasury Working Paper Series 13/11, New Zealand Treasury.
    8. John Creedy & Jesse Eedrah, 2016. "Income redistribution and changes in inequality in New Zealand from 2007 to 2011: Alternative distributions and value judgements," New Zealand Economic Papers, Taylor & Francis Journals, vol. 50(2), pages 129-152, August.
    9. Leszek Morawski & Aneta Semeniuk, 2013. "Zakres ubóstwa a reformy podatkowo-świadczeniowe w latach 2006-2010," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 4, pages 21-40.
    10. Halvarsson, Daniel & Korpi, Martin & Wennberg, Karl, 2016. "Entrepreneurship and Income Inequality," Ratio Working Papers 281, The Ratio Institute.
    11. Nicolas Herault & Francisco Azpitarte, 2014. "Recent Trends in Income Redistribution in Australia: Can Changes in the Tax-Transfer System Account for the Decline in Redistribution?," Melbourne Institute Working Paper Series wp2014n02, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    12. Halvarsson, Daniel & Korpi, Martin & Wennberg, Karl, 2018. "Entrepreneurship and income inequality," Journal of Economic Behavior & Organization, Elsevier, vol. 145(C), pages 275-293.

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    More about this item

    Keywords

    Social Welfare; Inequality; Alternative Welfare Metrics;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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