A consistent assessment of social welfare by two methodologies. The theory and evidence from the Luxembourg Income Study database

Stanislaw Maciej Kot () and Piotr R. Paradowski ()
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Stanislaw Maciej Kot: Gdansk University of Technology, Gdansk, Poland
Piotr R. Paradowski: Luxembourg Income Study (LIS), Luxembourg. Gdansk University of Technology, Gdansk, Poland.

No 72, GUT FME Working Paper Series A from Faculty of Management and Economics, Gdansk University of Technology

Abstract: Research background. Applied welfare economics offers various social welfare functions (SWF) for appraising income distributions. Social planners commonly use two SWFs: SWFε implied by income inequality aversion (e) and SWFv implied by rank inequality aversion (v). However, a voluntary choice of e or v may result in inconsistent assessments of social welfare embodied in a given income distribution. Purpose of the article. We search for the combinations of e and v that guarantee consistent assessments of social welfare, inequality and poverty embodied in a given income distribution. Methods. We propose estimating the pairs (e,v) by solving the system of two nonlinear equations. The first equation comprises the equally distributed equivalent incomes derived from SWFe and SWFv. The second equation comprises the benchmark incomes. A small increase in income below the benchmark income reduces inequality, whereas a small increase above the benchmark income increases inequality. The system of these equations can be solved numerically. Findings and Value added. We have estimated e, v, and related characteristics for selected Latin America and Caribbean countries using Luxembourg Income study database data.

Keywords: social welfare; Atkinson Index; Generalised Gini Index; inequality; poverty (search for similar items in EconPapers)
JEL-codes: C10 D30 D60 I30 O15 (search for similar items in EconPapers)
Date: 2024-05
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