Decomposing Inequality and Social Welfare Changes: The Use of Alternative Welfare Metrics

John Creedy and Nicolas Hérault

Melbourne Institute Working Paper Series from Melbourne Institute of Applied Economic and Social Research, The University of Melbourne

Abstract: This paper presents two 'non-welfarist' approaches and one 'welfarist' approach to decompose changes in inequality and social welfare into three components. We distinguish the contributions of population, tax policy and labour supply behavioural effects. As an illustration, we decompose changes in inequality and in values of a social welfare function in Australia between 2001 and 2006. Inequality is first defined in non-welfarist terms as a function of disposable income: the independent judge places no value on leisure. Then this is modified to allow for evaluations using a weighted geometric mean of disposable income and leisure. This is seen to modify the evaluation of changes in important ways. Furthermore, the results are shown to be quite different from those obtained using a 'welfarist' evaluation in terms of money metric utility, where separate behavioural effects cannot be isolated.

Keywords: Inequality decomposition; social welfare function; behavioural microsimulation; money metric utility (search for similar items in EconPapers)
JEL-codes: D63 H31 I31 J22 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2011-04
New Economics Papers: this item is included in nep-cmp and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Related works:
Working Paper: Decomposing Inequality and Social Welfare Changes: The Use of Alternative Welfare Metrics (2012)
Working Paper: Decomposing Inequality and Social Welfare Changes: The Use of Alternative Welfare Metrics (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:iae:iaewps:wp2011n08

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