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Income mobility as an equalizer of permanent income

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Abstract

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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  • Rolf Aaberge & Magne Mogstad, 2014. "Income mobility as an equalizer of permanent income," Discussion Papers 769, Statistics Norway, Research Department.
  • Handle: RePEc:ssb:dispap:769
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    Cited by:

    1. Rolf Aaberge & Anthony B. Atkinson & Jørgen Modalsli, 2013. "The ins and outs of top income mobility," Discussion Papers 762, Statistics Norway, Research Department.

    More about this item

    Keywords

    Inequality; Mobility; Permanent income; Social welfare; Rank-dependent measures;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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