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On the Measurement of Functional Income Distribution

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Abstract

The present study seeks to investigate the issue of income composition from a theoretical perspective. In order to make this possible, I introduce the concept of sources polarization among individuals (or groups), together with a novel methodological framework whereby further examining this subject. Such a framework hinges on two major elements. The first element is a new way to decompose individual and aggregate income. The second is a specific measure, called Functional Income Distribution Index, directly derived from the framework, which summarizes with one number the polarization of income sources across the population. I illustrate several mathematical properties of the index, among which a singular connection with the Gini coefficient. In addition to that, I carry out a first empirical application of the methodology, which focuses on the case of the US during the 20th century. I find strong evidence that income sources are no longer polarized among rich and poor as in the past

Suggested Citation

  • Marco Ranaldi, 2016. "On the Measurement of Functional Income Distribution," Documents de travail du Centre d'Economie de la Sorbonne 16051r, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne, revised Jan 2017.
    • Handle: RePEc:mse:cesdoc:16051r
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    1. Nicholas Kaldor, 1955. "Alternative Theories of Distribution," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 23(2), pages 83-100.
    2. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
    3. Lerman, Robert I & Yitzhaki, Shlomo, 1985. "Income Inequality Effects by Income," The Review of Economics and Statistics, MIT Press, vol. 67(1), pages 151-156, February.
    4. Yitzhaki, Shlomo, 1994. "Economic distance and overlapping of distributions," Journal of Econometrics, Elsevier, vol. 61(1), pages 147-159, March.
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    Cited by:

    1. Roberto Iacono & Marco Ranaldi, 2023. "The Evolution of Income Composition Inequality in Italy, 1989–2016," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 69(1), pages 124-149, March.

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    More about this item

    Keywords

    Functional Income; Income Distribution; Inequality; Polarization of Sources; Statistical Methodology;
    All these keywords.

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution

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