Ranking Income Distributions: The Tradeoff between Efficiency and Equality

Mo-Yin S. Tam and Renze Zhang

Economica, 1996, vol. 63, issue 250, pages 239-52

Abstract: Shorrocks suggested a broad welfare dominance relationship using the properties of Pigou-Dalton and Pareto to provide a partial ranking of income distributions. This paper considers a family of alternative dominance relationships generalizing Shorrocks's approach. The Pareto property, which states that welfare will not diminish if the income of any individual increases, holding other incomes constant, is replaced by the property that welfare will not diminish if the growth in income is shared by all the poorer sectors of the society. Implications of these alternatives are explored. Using data from the People's Republic of China, we show how the family of dominance relationships proposed in this paper can be used to examine real-world welfare changes. Copyright 1996 by The London School of Economics and Political Science.

Date: 1996

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