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The Measurement of Income Distribution Dynamics when Demographics are correlated with Income

Author

Listed:
  • Michael Grimm

    (University of Göttingen, Department of Economics, DIW Berlin)

  • Denis Cogneau

    (DIAL - UR CIPRÉ de l’IRD)

Abstract

The purpose of our paper is to derive instructive analytics on how to account for differentials in demographic variables, in particular mortality, when performing welfare comparisons over time. The idea is to apply various ways of `correcting' estimated income distribution measures for `sample selection' due to differential mortality. We implement our approach empirically using three waves of the Indonesian Family Life Surveys (IFLS). We distinguish the direct effect of mortality, i.e. individuals who die leave the population and no longer contribute to monetary welfare, from the indirect effect, i.e. the impact on survivors in the deceased's household who may experience a decrease or increase in monetary welfare. In the case of Indonesia, we show that the direct and indirect effects of mortality on income distribution have opposite signs, but are roughly the same in magnitude. We also show that the effects of other demographic changes- such as changes in the structure of fertility, migration and educational attainment- dominate the effects of mortality, whether direct or indirect. However, we find that none of these demographic developments is substantial enough to explain a significant part of the change in income distribution, regardless of whether the pre-crisis period (1993- 1997) or the post-crisis period (1997-2000) is considered.

Suggested Citation

  • Michael Grimm & Denis Cogneau, 2005. "The Measurement of Income Distribution Dynamics when Demographics are correlated with Income," Labor and Demography 0502003, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpla:0502003
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    Cited by:

    1. Corinna Ahlfeld, 2009. "The scapegoat of heterogeneity - How fragmentation influences political decisionmaking," Departmental Discussion Papers 143, University of Goettingen, Department of Economics.
    2. Borodkin, Fridrich & Bragin, Vladimir & Shpack, Maria, 2006. "Stability of Incomes Distribution in Modern Russia (1994–2004)," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 3(3), pages 17-67.
    3. Sascha Wolff, 2006. "Migration und ihre Determinanten im ost-westdeutschen Kontext nach der Wiedervereinigung: Ein Literaturüberblick," Departmental Discussion Papers 130, University of Goettingen, Department of Economics.
    4. Alan G. Isaac, 2014. "The Intergenerational Propagation of Wealth Inequality," Metroeconomica, Wiley Blackwell, vol. 65(4), pages 571-584, November.
    5. Petra Enß & Robert Schwager, 2006. "Kommunaler Finanzausgleich und Gewerbesteuerhebesätze in Niedersachsen," Departmental Discussion Papers 127, University of Goettingen, Department of Economics.
    6. Renate Ohr, 2009. "European Monetary Union at Ten: Had the German Maastricht Critics Been Wrong?," Departmental Discussion Papers 141, University of Goettingen, Department of Economics.
    7. Michael Grimm, 2006. "Mortality and survivors'consumption," Working Papers DT/2006/13, DIAL (Développement, Institutions et Mondialisation).
    8. Sanjaya, M Ryan, 2007. "Health cost in Indonesia: evidences from IFLS and Susenas data," MPRA Paper 13986, University Library of Munich, Germany.
    9. Grimm, M., 2010. "Does inequality in health impede growth?," ISS Working Papers - General Series 19426, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.

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    More about this item

    Keywords

    Differential Mortality; Income Distribution Dynamics; Welfare Comparisons; Decomposition.;
    All these keywords.

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • J17 - Labor and Demographic Economics - - Demographic Economics - - - Value of Life; Foregone Income

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