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Income redistribution going awry: The reversal power of the concern for relative deprivation

  • Stark, Oded
  • Sorger, Gerhard

We demonstrate that a rank-preserving transfer from a richer individual to a poorer individual can exacerbate income inequality (when inequality is measured by the Gini coefficient). This happens when individuals' preferences depend negatively not only on work time (effort) but also on low relative income. It is rigorously shown that the set of preference profiles that gives rise to this perverse effect of a transfer on inequality is a non-empty open subset of all preference profiles. A robust example illustrates this result.

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Paper provided by University of Tuebingen, Faculty of Economics and Social Sciences in its series University of Tuebingen Working Papers in Economics and Finance with number 47.

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Date of creation: 2012
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Handle: RePEc:zbw:tuewef:47
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  1. WEYMARK, John A., . "Generalized Gini inequality indices," CORE Discussion Papers RP -453, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Blackorby, Charles & Donaldson, David, 1980. "A Theoretical Treatment of Indices of Absolute Inequality," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 21(1), pages 107-36, February.
  3. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
  4. David Andolfatto, 2002. "A Theory of Inalienable Property Rights," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 382-393, April.
  5. Oded Stark & Walter Hyll & Yong Wang, 2010. "Endogenous Selection of Comparison Groups, Human Capital Formation, and Tax Policy," Vienna Economics Papers 1009, University of Vienna, Department of Economics.
  6. Hey, John D & Lambert, Peter J, 1980. "Relative Deprivation and the Gini Coefficient: Comment," The Quarterly Journal of Economics, MIT Press, vol. 95(3), pages 567-73, November.
  7. Kolm, Serge-Christophe, 1977. "Multidimensional Egalitarianisms," The Quarterly Journal of Economics, MIT Press, vol. 91(1), pages 1-13, February.
  8. Blanchflower, David G. & Oswald, Andrew J., 2008. "Hypertension and happiness across nations," Journal of Health Economics, Elsevier, vol. 27(2), pages 218-233, March.
  9. Oded Stark & Walter Hyll, 2011. "On the Economic Architecture of the Workplace: Repercussions of Social Comparisons among Heterogeneous Workers," Journal of Labor Economics, University of Chicago Press, vol. 29(2), pages 349 - 375.
  10. Foster, James E., 1983. "An axiomatic characterization of the Theil measure of income inequality," Journal of Economic Theory, Elsevier, vol. 31(1), pages 105-121, October.
  11. Stark, Oded & Fan, C. Simon, 2009. "A Theory of Migration as a Response to Occupational Stigma," Discussion Papers 55363, University of Bonn, Center for Development Research (ZEF).
  12. Lambert, Peter J & Aronson, J Richard, 1993. "Inequality Decomposition Analysis and the Gini Coefficient Revisited," Economic Journal, Royal Economic Society, vol. 103(420), pages 1221-27, September.
  13. Shorrocks, Anthony F, 1984. "Inequality Decomposition by Population Subgroups," Econometrica, Econometric Society, vol. 52(6), pages 1369-85, November.
  14. Chakravarty, Satya R, 1988. "Extended Gini Indices of Inequality," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(1), pages 147-56, February.
  15. Yitzhaki, Shlomo, 1979. "Relative Deprivation and the Gini Coefficient," The Quarterly Journal of Economics, MIT Press, vol. 93(2), pages 321-24, May.
  16. Zizzo, D.J. & Oswald, A., 2000. "Are People Willing to Pay to Reduce Others' Incomes?," The Warwick Economics Research Paper Series (TWERPS) 568, University of Warwick, Department of Economics.
  17. Blackorby, Charles & Donaldson, David, 1978. "Measures of relative equality and their meaning in terms of social welfare," Journal of Economic Theory, Elsevier, vol. 18(1), pages 59-80, June.
  18. BOSSERT, Walter & D’AMBROSIO, Conchita, 2004. "Reference Groups and Individual Deprivation," Cahiers de recherche 13-2004, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  19. Shorrocks, A F, 1980. "The Class of Additively Decomposable Inequality Measures," Econometrica, Econometric Society, vol. 48(3), pages 613-25, April.
  20. AndrewE. Clark & Claudia Senik, 2010. "Who Compares to Whom? The Anatomy of Income Comparisons in Europe," Economic Journal, Royal Economic Society, vol. 120(544), pages 573-594, 05.
  21. Donaldson, David & Weymark, John A., 1980. "A single-parameter generalization of the Gini indices of inequality," Journal of Economic Theory, Elsevier, vol. 22(1), pages 67-86, February.
  22. Luttmer, Erzo F. P., 2004. "Neighbors as Negatives: Relative Earnings and Well-Being," Working Paper Series rwp04-029, Harvard University, John F. Kennedy School of Government.
  23. Fliessbach, Klaus & Weber, Bernd & Trautner, P. & Dohmen, Thomas J. & Sunde, Uwe & Elger, C. E. & Falk, Armin, 2007. "Social comparison affects reward-related brain activity in the human ventral striatum," Munich Reprints in Economics 20362, University of Munich, Department of Economics.
  24. Ebert, Udo, 1987. "Size and distribution of incomes as determinants of social welfare," Journal of Economic Theory, Elsevier, vol. 41(1), pages 23-33, February.
  25. Sen, Amartya, 1973. "On Economic Inequality," OUP Catalogue, Oxford University Press, number 9780198281931, March.
  26. Foster, James E. & Shorrocks, Anthony F., 1988. "Inequality and poverty orderings," European Economic Review, Elsevier, vol. 32(2-3), pages 654-661, March.
  27. Stark, Oded & Taylor, J Edward, 1991. "Migration Incentives, Migration Types: The Role of Relative Deprivation," Economic Journal, Royal Economic Society, vol. 101(408), pages 1163-78, September.
  28. Clark, Andrew E. & Frijters, Paul & Shields, Michael A., 2007. "Relative Income, Happiness and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," IZA Discussion Papers 2840, Institute for the Study of Labor (IZA).
  29. Bossert, Walter, 1990. "An axiomatization of the single-series Ginis," Journal of Economic Theory, Elsevier, vol. 50(1), pages 82-92, February.
  30. Stark, Oded & Fan, C. Simon, 2010. "Migration for degrading work as an escape from humiliation," MPRA Paper 28905, University Library of Munich, Germany.
  31. Ebert, Udo, 1984. "Measures of distance between income distributions," Journal of Economic Theory, Elsevier, vol. 32(2), pages 266-274, April.
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