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Bounds of Unfair Inequality of Opportunity: Theory and Evidence for Germany and the US

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  • Judith Niehues
  • Andreas Peichl

Abstract

Previous estimates of inequality of opportunity (IOp) are lower bounds because of the unobservability of the full set of endowed characteristics beyond the sphere of individual responsibility. Knowing the true size of unfair IOp, however, is important for the acceptance of (some) inequality and the design of redistributive policies as underestimating the true amount of IOp might lead to too little redistribution. This paper is the first to suggest an upper bound estimator. We illustrate our approach by comparing Germany and the US based on harmonized micro data. We find significant, sizeable and robust differences between lower and upper bound estimates - both for gross and net earnings based on either periodical or permanent income - for both countries. We discuss the cross-country differences and (surprising) similarities in IOp in the light of differences in social mobility and persistence.

Suggested Citation

  • Judith Niehues & Andreas Peichl, 2012. "Bounds of Unfair Inequality of Opportunity: Theory and Evidence for Germany and the US," CESifo Working Paper Series 3815, CESifo.
  • Handle: RePEc:ces:ceswps:_3815
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    Cited by:

    1. Paul Hufe & Andreas Peichl & Daniel Weishaar, 2019. "Lower and Upper Bounds of Inequality of Opportunity in Emerging Economies," ifo Working Paper Series 301, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    2. Lara Ibarra,Gabriel & Martinez Cruz,Adan L., 2015. "Exploring the sources of downward bias in measuring inequality of opportunity," Policy Research Working Paper Series 7458, The World Bank.

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    More about this item

    Keywords

    equality of opportunity; earnings inequality; mobility; circumstances; family background; redistribution;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
    • J70 - Labor and Demographic Economics - - Labor Discrimination - - - General

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