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Rawls' fairness, income distribution and alarming level of Gini coefficient

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  • Tao, Yong
  • Wu, Xiangjun
  • Li, Changshuai

Abstract

The arguments that the alarming level of Gini coefficient is 0.4 are widely reported. However, to the authors' knowledge, it is not based upon any rigid economic theories. In this paper, they show that Rawls' fairness is compatible with the standard model of competitive markets. This finding reveals that the exponential income distribution not only satisfies Pareto optimality (or efficiency) but also obeys social fairness in Rawls' sense. Therefore, the authors specify the maximal value of Gini coefficients when income follows exponential distribution as a minimal basic reference point of the alarming level (calculated as 0.5), above which efficiency and Rawls' fairness cannot be guaranteed simultaneously. Their empirical investigations show that during peaceful times, worldwide Gini coefficients approximately obey asymptotic normal distribution with a mean around 0.4, contradicting the implication of alarming level; while the two-sigma rule shows that in our sample the alarming levels are all larger than 0.5, conforming to our prediction.

Suggested Citation

  • Tao, Yong & Wu, Xiangjun & Li, Changshuai, 2017. "Rawls' fairness, income distribution and alarming level of Gini coefficient," Economics Discussion Papers 2017-67, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwedp:201767
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    Cited by:

    1. Yong Tao & Xiangjun Wu & Tao Zhou & Weibo Yan & Yanyuxiang Huang & Han Yu & Benedict Mondal & Victor M. Yakovenko, 2019. "Exponential structure of income inequality: evidence from 67 countries," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 14(2), pages 345-376, June.
    2. Fan Jiang & Nian Cai Liu, 2020. "New wine in old bottles? Examining institutional hierarchy in laureate mobility networks, 1900–2017," Scientometrics, Springer;Akadémiai Kiadó, vol. 125(2), pages 1291-1304, November.

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    More about this item

    Keywords

    Rawls' fairness; Competitive equilibrium; Income distribution; Gini coefficient;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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