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Charting Income Inequality: The Lorenz Curve

Author

Listed:
  • Bellù, Lorenzo G.
  • Liberati, Paolo

Abstract

This paper explains how to build Lorenz Curves for income distributions and discusses their use for inequality measurement. A short conceptual background, a step-by-step procedure and a simple numerical example illustrate how to calculate and draw Lorenz Curves. A discussion on the use of Lorenz Curves to represent inequality is also provided. It highlights that the Lorenz Curve is one of the most used ways of representing income distributions in empirical works thanks to its immediate comparability with a “natural” benchmark, the Equidistribution line, representing the most egalitarian distribution. The concepts of Lorenz dominance and intersection of Lorenz Curves are also discussed. Furthermore, the appendix provides a detailed presentation of the properties of the Lorenz Curves.

Suggested Citation

  • Bellù, Lorenzo G. & Liberati, Paolo, 2005. "Charting Income Inequality: The Lorenz Curve," MPRA Paper 30063, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:30063
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    File URL: https://mpra.ub.uni-muenchen.de/30063/1/MPRA_paper_30063.pdf
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    References listed on IDEAS

    as
    1. Branko Milanovic, 1999. "Explaining the increase in inequality during transition," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 7(2), pages 299-341, July.
    2. Asad Alam & Mamta Murthi & Ruslan Yemtsov & Edmundo Murrugarra & Nora Dudwick & Ellen Hamilton & Erwin Tiongson, 2005. "Growth, Poverty and Inequality : Eastern Europe and the Former Soviet Union," World Bank Publications, The World Bank, number 7287.
    3. Esteban, Joan & Ray, Debraj, 1994. "On the Measurement of Polarization," Econometrica, Econometric Society, pages 819-851.
    4. Jean-Yves Duclos & Joan Esteban & Debraj Ray, 2004. "Polarization: Concepts, Measurement, Estimation," Econometrica, Econometric Society, vol. 72(6), pages 1737-1772, November.
    5. Damien Échevin & Antoine Parent, 2002. "Les indicateurs de polarisation et leur application à la France," Economie & Prévision, La Documentation Française, pages 13-30.
    6. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Lorenz curves; income distribution; inequality measures; Lorenzo dominance; equidistribution line; inequality; poverty;

    JEL classification:

    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D30 - Microeconomics - - Distribution - - - General
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values
    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • J4 - Labor and Demographic Economics - - Particular Labor Markets
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • J5 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining

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