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Income Distributions and Decomposable Divergence Measures

  • Brice Magdalou

    ()

    (CEREGMIA, Université des Antilles et de la Guyane)

  • Richard Nock

    ()

    (CEREGMIA, Université des Antilles et de la Guyane)

Inequality indices (i) evaluate the divergence between the income distribution and the hypothetical situation where all individuals have the mean income and (ii) are unambiguously reduced by a Pigou-Dalton progressive transfer. This paper proposes a new approach to evaluate the divergence between any two income distributions, where the second one can be a reference distribution for the first. In the case where the reference distribution is perfectly egalitarian, and uniquely in this case, we assume (i) that any progressive transfer reduces the divergence and (ii) that the divergence can be additively separated between inequality and efficiency loss. We characterize the unique class of decomposable divergence measures consistent with these views, and we derive the associated relative (resp. absolute) subclasses, which express constant relative (resp. absolute) inequality aversion. This approach extends the generalized entropy studied in inequality measurement.

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File URL: http://www2.univ-ag.fr/RePEc/DT/DT2010-01_Magdalou_Nock.pdf
File Function: First version, 2010
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Paper provided by CEREGMIA, Université des Antilles et de la Guyane in its series Documents de Travail with number 2010-01.

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Length: 21 pages
Date of creation: Apr 2010
Date of revision:
Handle: RePEc:crg:wpaper:dt2010-01
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