The effect on inequality of changing one or two incomes
We examine the effect on inequality of increasing one income, and show that for two wide classes of indices a benchmark income level or position exists, dividing upper from lower incomes, such that if a lower income is raised, inequality falls, and if an upper income is raised, inequality rises. We provide a condition on the inequality orderings implicit in two inequality indices under which the one has a lower benchmark than the other for all unequal income distributions. We go on to examine the effect on the same indices of simultaneously increasing one income and decreasing another higher up the distribution, deriving results which quantify the extent of the 'bucket leak' which can be tolerated without negating the beneficial inequality effect of the transfer. Our results have implications for the inequality impacts of different income growth patterns, and of redistributive programmes (leaky or not), which are briefly discussed. Keywords: inequality index, inequality ordering, leaky bucket.
|Date of creation:||Jul 2003|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (+44) 020 7291 4800
Fax: (+44) 020 7323 4780
Web page: http://www.ifs.org.uk
More information through EDIRC
|Order Information:|| Postal: The Institute for Fiscal Studies 7 Ridgmount Street LONDON WC1E 7AE|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Alain Chateauneuf & Thibault Gajdos & Pierre-Henry Wilthien, 2002.
"The Principle of Strong Diminishing Transfer,"
Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers)
- Shorrocks, A F, 1982. "Inequality Decomposition by Factor Components," Econometrica, Econometric Society, vol. 50(1), pages 193-211, January.
- Donaldson, David & Weymark, John A., 1983.
"Ethically flexible gini indices for income distributions in the continuum,"
Journal of Economic Theory,
Elsevier, vol. 29(2), pages 353-358, April.
- DONALDSON, David & WEYMARK, John A., . "Ethically flexible Gini indices for income distributions in the continuum," CORE Discussion Papers RP -520, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Yaari, Menahem E., 1988. "A controversial proposal concerning inequality measurement," Journal of Economic Theory, Elsevier, vol. 44(2), pages 381-397, April.
- Wolfson, Michael C, 1994. "When Inequalities Diverge," American Economic Review, American Economic Association, vol. 84(2), pages 353-58, May.
- Berrebi, Z. M. & Silber, Jacques, 1981. "Weighting income ranks and levels : A Multiple-Parameter Generalization For Absolute and Relative Inequality Indices," Economics Letters, Elsevier, vol. 7(4), pages 391-397.
- Bourguignon, Francois, 1979. "Decomposable Income Inequality Measures," Econometrica, Econometric Society, vol. 47(4), pages 901-20, July.
- Weymark, John A., 1981.
"Generalized gini inequality indices,"
Mathematical Social Sciences,
Elsevier, vol. 1(4), pages 409-430, August.
- Ok, Efe A. & Foster, James, 1997.
"Lorenz Dominance and the Variance of Logarithms,"
97-22, C.V. Starr Center for Applied Economics, New York University.
- Christian Seidl, 2001. "Inequality measurement and the leaky-bucket paradox," Economics Bulletin, AccessEcon, vol. 4(6), pages 1-7.
- Mehran, Farhad, 1976. "Linear Measures of Income Inequality," Econometrica, Econometric Society, vol. 44(4), pages 805-09, July.
- Shorrocks, A F, 1980. "The Class of Additively Decomposable Inequality Measures," Econometrica, Econometric Society, vol. 48(3), pages 613-25, April.
- Miles S. Kimball, 1989.
"Precautionary Saving in the Small and in the Large,"
NBER Working Papers
2848, National Bureau of Economic Research, Inc.
- Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January.
- Duclos, Jean-Yves & Jalbert, Vincent & Araar, Abdelkrim, 2003. "Classical Horizontal Inequity and Reranking: an Integrating Approach," Cahiers de recherche 0306, CIRPEE.
- 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.
- Cowell, Frank A, 1980. "On the Structure of Additive Inequality Measures," Review of Economic Studies, Wiley Blackwell, vol. 47(3), pages 521-31, April.
- Kolm, Serge-Christophe, 1976. "Unequal inequalities. I," Journal of Economic Theory, Elsevier, vol. 12(3), pages 416-442, June.
- Wilthien, P.-H., 1999. "Downside-Mindedness," Papiers d'Economie MathÃ©matique et Applications 1999-97, UniversitÃ© PanthÃ©on-Sorbonne (Paris 1).
- Duclos, Jean-Yves, 1998. "Social evaluation functions, economic isolation and the Suits index of progressivity," Journal of Public Economics, Elsevier, vol. 69(1), pages 103-121, July.
- Contoyannis, Paul & Forster, Martin, 1999.
"The distribution of health and income: a theoretical framework,"
Journal of Health Economics,
Elsevier, vol. 18(5), pages 603-620, October.
- Paul Contoyannis & Martin Forster, . "The Distribution of Health and Income: A Theoretical Framework," Discussion Papers 98/22, Department of Economics, University of York.
- Glewwe, Paul, 1991. "Household equivalence scales and the measurement of inequality : Transfers from the poor to the rich could decrease inequality," Journal of Public Economics, Elsevier, vol. 44(2), pages 211-216, March.
- Rolf Aaberge, 2000. "Axiomatic characterization of the Gini coefficient and Lorenz," ICER Working Papers 06-2000, ICER - International Centre for Economic Research.
- 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.
- Jean-Yves Duclos, 2000. "Gini Indices and the Redistribution of Income," International Tax and Public Finance, Springer, vol. 7(2), pages 141-162, March.
- Lars Osberg, 1998. "Economic Insecurity," Discussion Papers 0088, University of New South Wales, Social Policy Research Centre.
- Shorrocks, Anthony F & Foster, James E, 1987. "Transfer Sensitive Inequality Measures," Review of Economic Studies, Wiley Blackwell, vol. 54(3), pages 485-97, July.
When requesting a correction, please mention this item's handle: RePEc:ifs:ifsewp:03/15. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Stephanie Seavers)
If references are entirely missing, you can add them using this form.