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Income mobility as an equalizer of permanent income

Do market-orientated economies with relatively large cross-sectional levels of inequality have higher income mobility and therefore less permanent inequality? To answer this question, we introduce a formal representation of income mobility as an equalizer of permanent income. The proposed representation is called a mobility curve and forms the basis for comparison of income distributions according to income mobility. The mobility curve captures the extent to which the distribution of permanent income is equalized because of changes in individuals’ relative income over time. From the derivative of the mobility curve, we can assess the equalizing effect of income mobility in the lower, middle and upper part of the distribution of permanent income. The mobility curve allows us to develop dominance criteria that provide partial orderings of income distributions according to income mobility. We obtain complete orderings through an axiomatically justified family of rank-dependent measures of income mobility, which summarizes the informational content of the mobility curve. We illustrate the usefulness of these methods by re-examining previous findings of income mobility across countries. In contrast to the conclusions in previous studies, we find that changes in relative income over time contribute more (as much) to equality in permanent income in the US as in the Nordic countries and Germany.

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Paper provided by Statistics Norway, Research Department in its series Discussion Papers with number 769.

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Date of creation: Jan 2014
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Handle: RePEc:ssb:dispap:769
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  1. Fields, Gary S & Fei, John C H, 1978. "On Inequality Comparisons," Econometrica, Econometric Society, vol. 46(2), pages 303-16, March.
  2. Peter Gottschalk & Enrico Spolaore, 1998. "On the Evaluation of Economic Mobility," Boston College Working Papers in Economics 407., Boston College Department of Economics.
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  9. Dardanoni Valentino, 1993. "Measuring Social Mobility," Journal of Economic Theory, Elsevier, vol. 61(2), pages 372-394, December.
  10. Richard V. Burkhauser & John G. Poupore, 1997. "A Cross-National Comparison Of Permanent Inequality In The United States And Germany," The Review of Economics and Statistics, MIT Press, vol. 79(1), pages 10-17, February.
  11. Aaberge, Rolf, 2001. "Axiomatic Characterization of the Gini Coefficient and Lorenz Curve Orderings," Journal of Economic Theory, Elsevier, vol. 101(1), pages 115-132, November.
  12. Valentino Dardanoni & Marcello D’Agostino, 2007. "The Measurement of Rank Mobility," Working Papers 80, ECINEQ, Society for the Study of Economic Inequality.
  13. Rolf Aaberge, 2000. "Characterizations of Lorenz curves and income distributions," Social Choice and Welfare, Springer, vol. 17(4), pages 639-653.
  14. Kolm, Serge-Christophe, 1976. "Unequal inequalities. II," Journal of Economic Theory, Elsevier, vol. 13(1), pages 82-111, August.
  15. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
  16. Wen-Hao Chen, 2009. "Cross-National Differences In Income Mobility: Evidence From Canada, The United States, Great Britain And Germany," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 55(1), pages 75-100, 03.
  17. Esfandiar Maasoumi & Mark Trede, 2001. "Comparing Income Mobility In Germany And The United States Using Generalized Entropy Mobility Measures," The Review of Economics and Statistics, MIT Press, vol. 83(3), pages 551-559, August.
  18. Sastre, Mercedes & Ayala, Luis, 2002. "Europe vs. the United States: is there a trade-off between mobility and inequality?," ISER Working Paper Series 2002-26, Institute for Social and Economic Research.
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