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Income inequality and price elasticity of market demand: the case of crossing Lorenz curves

Marat Ibragimov, Rustam Ibragimov (), Paul Kattuman () and Jun Ma ()
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Marat Ibragimov: Kazan (Volga Region) Federal University
Rustam Ibragimov: Imperial College Business School
Paul Kattuman: University of Cambridge
Jun Ma: University of Cambridge

Economic Theory, 2018, vol. 65, issue 3, 729-750

Abstract: Abstract This paper extends Ibragimov and Ibragimov (Econ Theory 32:579–587, 2007) in which the effect of changes income inequality on the price elasticity of market demand is characterized for the class of income distribution changes occurring through non-intersecting Lorenz curve shifts. We derive sufficient conditions for increase/decrease in price elasticity of market demand, under general changes in income distribution, allowing Lorenz curves to intersect as they shift. We conclude by drawing out implications of different types of tax policy changes for demand elasticity.

Keywords: Income distribution; Inequality; Downside inequality aversion; Transfer sensitivity; Market demand elasticity; Direct tax policy (search for similar items in EconPapers)
JEL-codes: D11 D31 D63 (search for similar items in EconPapers)
Date: 2018
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