Social Welfare Analysis of Income Distributions: Ranking Income Distributions with Crossing Generalised Lorenz Curves

Lorenzo Bellù and Paolo Liberati

MPRA Paper from University Library of Munich, Germany

Abstract: This paper illustrates how Crossing Generalised Lorenz (GL) curves can be used to identify the best income distribution on social welfare grounds within a set of alternative income distributions generated by different policy options. It starts by illustrating two alternative income distributions resulting from policy changes that lead to income increases for some individuals and decreases for others. GL curves are then calculated for the alternative distributions to rank them on welfare grounds on the basis of Shorrocks’ Theorem. After observing that Shorrocks’ Theorem is not applicable, because GL curves cross once, necessary additional conditions, such as restrictions on the features of the Social Welfare Function (SWF) and the shape of income distributions, are set and discussed. Subsequently, a step-by-step procedure to use GL curves to infer welfare judgments when GL cross once, is provided and illustrated with some simple numerical examples.

Keywords: crossing generalised lorenz (GL) curves; social welfare; income distribution; poverty; Shorrocks’ Theorem; social welfare funtion; Rawlsian; diminishing transfers; utilitarian preferences (search for similar items in EconPapers)
JEL-codes: A13 C02 D30 D31 D61 D63 E64 H22 H23 H53 I30 I31 I32 I38 J4 J5 (search for similar items in EconPapers)
Date: 2005-11-01
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Citations: View citations in EconPapers (3)

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