On the Measurement of Inequality
TL;DR: In this paper, the problem of comparing two frequency distributions f(u) of an attribute y which for convenience I shall refer to as income is defined as a risk in the theory of decision-making under uncertainty.
About: This article is published in Journal of Economic Theory.The article was published on 1970-09-01. It has received 5002 citations till now. The article focuses on the topics: Income inequality metrics & Income distribution.
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TL;DR: In this paper, the authors consider an OLG economy where the government, in addition to running social security, also funds education via a dedicated tax, and demonstrate that the FF social security system produces political support for a relatively higher education funding, and hence generates higher rates of human capital accumulation, physical capital accumulation and economic growth.
39 citations
TL;DR: The authors examines the implications of extending the Ahmad-Stern model of indirect tax reform to include labour supply and examines the sensitivity of the results to assumptions regarding functional form and, in particular, goods/leisure sc'parability.
Abstract: This paper examines the implications of extending the Ahmad-Stern model of indirect tax reform to include labour supply. The inclusion of labour supply alters the basic measure of marginal revenue cost (MRC) of indirect taxation and introduces the possibility of calculating a MRC for direct taxation. The paper derives the expressions for these revised MRCs and provides estimates from Irish data. It then examines the sensitivity of the results to assumptions regarding functional form and, in particular, goods/leisure sc'parability. In setting optimal tax rates policy-makers face considerable difficulties. Explicit assumptions must be made regarding the underlying preferences of the consumer (i.e. the functional form for the utility and demand functions) and also about how expenditures are distributed. Sensitivity to underlying preferences is discussed by Deaton (i 98 I) and is empirically examined by Ray (I986) and Ebrahimi and Heady (I988). Policy-makers also face the problem that even when they do provide explicit forms for demand functions they face difficulties regarding the reliability of estimates and are also evaluating demand responses at a point possibly quite far away from the optimum. The difficulties outlined above led to the development of the marginal tax reform literature, with the seminal paper in this area by Ahmad and Stern (I984). This approach has the considerable advantage of not requiring the choice of explicit utility functions, nor of distributions of expenditure, but instead merely requiring information on the actual position of the economy at a single point in time, using actual consumption and distributions of expenditure. It must be noted that tax reform does require information on demand responses, so that results in this area can still be sensitive to the specification of consumer preferences and demand systems. However, tax reform results appear to be less sensitive than do tax design results to this
39 citations
TL;DR: In this paper, the authors provide measures of inequality in individual well-being by using a normative multidimensional approach and consider heterogeneous inequality aversion parameters, estimated on the basis of country-specific tax structures.
39 citations
TL;DR: In this paper, the authors re-examine the concept of beta-convergence in living standards across countries during the period 1980-2012 and apply a semiparametric specification of this process to the Human Development Index (HDI) and each of its intermediate indices.
Abstract: We re-examine the concept of beta-convergence in living standards across countries during the period 1980–2012. In this study, well-being is assessed using the Human Development Index (HDI) which considers income aspects as well as social indicators, thus reflecting the multidimensional nature of this process. The existence of sigma convergence is evidenced in this study and hence beta convergence, as a necessary condition, is also pointed out. However, the linearity of this process has been questioned. Therefore, we apply a semiparametric specification of this process to the HDI and each of its intermediate indices. These models allows for nonlinearities in the estimation of the convergence speed. Our results reveal that absolute convergence in human well-being is satisfactorily represented by the conventional linear specification. However the income and education indices show nonlinear patterns. We also include structural variables to capture differences in the steady-state (conditional convergence). Under this model, convergence speed of all indicators is higher and the convergence process seems to be linear only for the health index.
39 citations
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TL;DR: In this article, a measure of risk aversion in the small, the risk premium or insurance premium for an arbitrary risk, and a natural concept of decreasing risk aversion are discussed and related to one another.
Abstract: This paper concerns utility functions for money. A measure of risk aversion in the small, the risk premium or insurance premium for an arbitrary risk, and a natural concept of decreasing risk aversion are discussed and related to one another. Risks are also considered as a proportion of total assets.
5,207 citations
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"On the Measurement of Inequality" refers background in this paper
...3 See Rothschild and Stiglitz [13], Hadar and Russell [ 5 ], and Hanoch and Levy [6]....
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1,738 citations
"On the Measurement of Inequality" refers methods in this paper
...Then by applying the results of Pratt [l 11, Arrow [ 2 ], and others, we can see that this requirement (which may be referred to as constant (relative) inequality-aversion) implies that U(y) has the form...
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1,544 citations
TL;DR: In this paper, an analysis of the first step of the decision-making process of an individual decision maker among alternative risky ventures is presented, in terms of a single dimension such as money, both for the utility functions and for the probability distributions.
Abstract: Publisher Summary The choice of an individual decision maker among alternative risky ventures may be regarded as a two-step procedure. The decision maker chooses an efficient set among all available portfolios, independently of his tastes or preferences. Then, the decision maker applies individual preferences to this set to choose the desired portfolio. The subject of this chapter is the analysis of the first step. It deals with optimal selection rules that minimize the efficient set by discarding any portfolio that is inefficient in the sense that it is inferior to a member of the efficient set, from point of view of each and every individual, when all individuals' utility functions are assumed to be of a given general class of admissible functions. The analysis presented in the chapter is carried out in terms of a single dimension such as money, both for the utility functions and for the probability distributions. However, the results may easily be extended, with minor changes in the theorems and the proofs, to the multivariate case. The chapter explains a necessary and sufficient condition for efficiency, when no further restrictions are imposed on the utility functions. It presents proofs of the optimal efficiency criterion in the presence of general risk aversion, that is, for concave utility functions.
1,160 citations