The effect on inequality of changing one or two incomes

Peter Lambert, and Giuseppe Lanza
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Peter Lambert,: Institute for Fiscal Studies
Giuseppe Lanza: Institute for Fiscal Studies

No W03/15, IFS Working Papers from Institute for Fiscal Studies

Abstract: We examine the effect on inequality of increasing one income, and show that for two wide classes of indices a benchmark income level or position exists, dividing upper from lower incomes, such that if a lower income is raised, inequality falls, and if an upper income is raised, inequality rises. We provide a condition on the inequality orderings implicit in two inequality indices under which the one has a lower benchmark than the other for all unequal income distributions. We go on to examine the effect on the same indices of simultaneously increasing one income and decreasing another higher up the distribution, deriving results which quantify the extent of the 'bucket leak' which can be tolerated without negating the beneficial inequality effect of the transfer. Our results have implications for the inequality impacts of different income growth patterns, and of redistributive programmes (leaky or not), which are briefly discussed. Keywords: inequality index, inequality ordering, leaky bucket.

JEL-codes: D63 (search for similar items in EconPapers)
Pages: 27 pp
Date: 2003-07-03
New Economics Papers: this item is included in nep-lab and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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