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Subsidies for whom? The rule of (G+1)/2

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  • Alejandro Corvalan

    (Facultad de Economía y Empresa, Universidad Diego Portales)

Abstract

This paper shows that for a society with inequality described by a Gini coe¢ cient G, a pivotal individual is located in the (G + 1)=2 percentile: any dollar given to an individual poorer (richer) than himself decreases (increases) G. As a consequence, an optimal lump sum subsidy, in terms of the Gini index, is the one given to all individuals ranked below this percentile. We show that in 2/3 of the countries such an individual is within the eighth decile. Hence, from a comparative perspective, the (G + 1)=2 percentile is the rule of the eighth decile. All subsidies targeted below this decile contribute to egalitarian redistribution. This result is robust to the use of other inequality measures, such as Theil indices.

Suggested Citation

  • Alejandro Corvalan, 2011. "Subsidies for whom? The rule of (G+1)/2," Working Papers 31, Facultad de Economía y Empresa, Universidad Diego Portales.
  • Handle: RePEc:ptl:wpaper:31
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    References listed on IDEAS

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    1. Dasgupta, Partha & Sen, Amartya & Starrett, David, 1973. "Notes on the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 6(2), pages 180-187, April.
    2. Sen, Amartya, 1973. "On Economic Inequality," OUP Catalogue, Oxford University Press, number 9780198281931.
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