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Social Welfare Analysis of Income Distributions: Ranking Income Distributions with Lorenz Curves

Author

Listed:
  • Bellù, Lorenzo Giovanni
  • Liberati, Paolo

Abstract

This paper illustrates how Lorenz Curves can be used to identify the best income distribution on social welfare grounds, within a set of alternative income distributions generated by different policy options. After highlighting some drawbacks of using specific functional forms of the Social Welfare Function (SWF) to infer welfare judgments, the rationale for using Lorenz Curves to rank income distributions is provided in a step-by-step procedure and is illustrated with some simple numerical examples. This module also points out the limitations of Lorenz dominance and highlights how, in some circumstances, it is necessary to use Generalised Lorenz (GL) Curves.

Suggested Citation

  • Bellù, Lorenzo Giovanni & Liberati, Paolo, 2005. "Social Welfare Analysis of Income Distributions: Ranking Income Distributions with Lorenz Curves," MPRA Paper 30103, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:30103
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    File URL: https://mpra.ub.uni-muenchen.de/30103/1/MPRA_paper_30103.pdf
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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. 278 – Global wealth inequality
      by David Pannell in Pannell Discussions on 2015-02-09 21:00:54

    More about this item

    Keywords

    lorenz curve; social welfare function; generalised lorenz curves; income distributions; inequality; poverty; lorenz dominance; atkinsons theorem;

    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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