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Income redistribution going awry: The reversal power of the concern for relative deprivation

  • Sorger, Gerhard
  • Stark, Oded

We demonstrate that a rank-preserving transfer from a richer individual to a poorer individual can exacerbate income inequality (when inequality is measured by the Gini coefficient). This happens when individuals’ preferences depend negatively not only on work time (effort) but also on low relative income. It is rigorously shown that the set of preference profiles that gives rise to this perverse effect of a transfer on inequality is a non-empty open subset of all preference profiles. A robust example illustrates this result.

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Paper provided by University of Bonn, Center for Development Research (ZEF) in its series Discussion Papers with number 142407.

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Date of creation: Dec 2012
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Handle: RePEc:ags:ubzefd:142407
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  1. Yitzhaki, Shlomo, 1979. "Relative Deprivation and the Gini Coefficient," The Quarterly Journal of Economics, MIT Press, vol. 93(2), pages 321-24, May.
  2. Clark, Andrew E. & Senik, Claudia, 2009. "Who Compares to Whom? The Anatomy of Income Comparisons in Europe," IZA Discussion Papers 4414, Institute for the Study of Labor (IZA).
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  4. Blackorby, Charles & Donaldson, David, 1980. "A Theoretical Treatment of Indices of Absolute Inequality," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 21(1), pages 107-36, February.
  5. Oded Stark & Walter Hyll, 2011. "On the Economic Architecture of the Workplace: Repercussions of Social Comparisons among Heterogeneous Workers," Journal of Labor Economics, University of Chicago Press, vol. 29(2), pages 349 - 375.
  6. Fliessbach, Klaus & Weber, Bernd & Trautner, P. & Dohmen, Thomas J. & Sunde, Uwe & Elger, C. E. & Falk, Armin, 2007. "Social comparison affects reward-related brain activity in the human ventral striatum," Munich Reprints in Economics 20362, University of Munich, Department of Economics.
  7. Blanchflower, David G. & Oswald, Andrew J., 2008. "Hypertension and happiness across nations," Journal of Health Economics, Elsevier, vol. 27(2), pages 218-233, March.
  8. Oded Stark & Walter Hyll & Yong Wang, 2012. "Endogenous Selection of Comparison Groups, Human Capital Formation, and Tax Policy," Economica, London School of Economics and Political Science, vol. 79(313), pages 62-75, 01.
  9. Zizzo, D.J. & Oswald, A., 2000. "Are People Willing to Pay to Reduce Others' Incomes?," The Warwick Economics Research Paper Series (TWERPS) 568, University of Warwick, Department of Economics.
  10. Erzo F.P. Luttmer, 2004. "Neighbors as Negatives: Relative Earnings and Well-Being," NBER Working Papers 10667, National Bureau of Economic Research, Inc.
  11. Clark, Andrew E. & Frijters, Paul & Shields, Michael A., 2007. "Relative Income, Happiness and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," IZA Discussion Papers 2840, Institute for the Study of Labor (IZA).
  12. Blackorby, Charles & Donaldson, David, 1978. "Measures of relative equality and their meaning in terms of social welfare," Journal of Economic Theory, Elsevier, vol. 18(1), pages 59-80, June.
  13. Foster, James E. & Shorrocks, Anthony F., 1988. "Inequality and poverty orderings," European Economic Review, Elsevier, vol. 32(2-3), pages 654-661, March.
  14. Shorrocks, Anthony F, 1984. "Inequality Decomposition by Population Subgroups," Econometrica, Econometric Society, vol. 52(6), pages 1369-85, November.
  15. C. Simon Fan & Oded Stark, 2011. "A Theory Of Migration As A Response To Occupational Stigma," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(2), pages 549-571, 05.
  16. Weymark, John A., 1981. "Generalized gini inequality indices," Mathematical Social Sciences, Elsevier, vol. 1(4), pages 409-430, August.
  17. BOSSERT, Walter & D’AMBROSIO, Conchita, 2004. "Reference Groups and Individual Deprivation," Cahiers de recherche 13-2004, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  18. Chakravarty, Satya R, 1988. "Extended Gini Indices of Inequality," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(1), pages 147-56, February.
  19. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
  20. Stark, Oded & Fan, C. Simon, 2011. "Migration for degrading work as an escape from humiliation," Journal of Economic Behavior & Organization, Elsevier, vol. 77(3), pages 241-247, March.
  21. Shorrocks, A F, 1980. "The Class of Additively Decomposable Inequality Measures," Econometrica, Econometric Society, vol. 48(3), pages 613-25, April.
  22. David Andolfatto, 2000. "A Theory of Inalienable Property Rights," Cahiers de recherche CREFE / CREFE Working Papers 110, CREFE, Université du Québec à Montréal.
  23. Donaldson, David & Weymark, John A., 1980. "A single-parameter generalization of the Gini indices of inequality," Journal of Economic Theory, Elsevier, vol. 22(1), pages 67-86, February.
  24. Foster, James E., 1983. "An axiomatic characterization of the Theil measure of income inequality," Journal of Economic Theory, Elsevier, vol. 31(1), pages 105-121, October.
  25. Ebert, Udo, 1984. "Measures of distance between income distributions," Journal of Economic Theory, Elsevier, vol. 32(2), pages 266-274, April.
  26. Kolm, Serge-Christophe, 1977. "Multidimensional Egalitarianisms," The Quarterly Journal of Economics, MIT Press, vol. 91(1), pages 1-13, February.
  27. Bossert, Walter, 1990. "An axiomatization of the single-series Ginis," Journal of Economic Theory, Elsevier, vol. 50(1), pages 82-92, February.
  28. Lambert, Peter J & Aronson, J Richard, 1993. "Inequality Decomposition Analysis and the Gini Coefficient Revisited," Economic Journal, Royal Economic Society, vol. 103(420), pages 1221-27, September.
  29. Hey, John D & Lambert, Peter J, 1980. "Relative Deprivation and the Gini Coefficient: Comment," The Quarterly Journal of Economics, MIT Press, vol. 95(3), pages 567-73, November.
  30. Sen, Amartya, 1973. "On Economic Inequality," OUP Catalogue, Oxford University Press, number 9780198281931, March.
  31. Stark, Oded & Taylor, J Edward, 1991. "Migration Incentives, Migration Types: The Role of Relative Deprivation," Economic Journal, Royal Economic Society, vol. 101(408), pages 1163-78, September.
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