The Atlas of Inequality Aversion: Theory and Empirical Evidence from the Luxembourg Income Study Database

Stanislaw Maciej Kot and Piotr Paradowski ()

No 826, LIS Working papers from LIS Cross-National Data Center in Luxembourg

Abstract: In the distributive analysis, the constant relative inequality aversion utility function is a standard tool for ethical judgements of income distributions. The sole parameter ε of this function expresses a society’s aversion to inequality. However, the profession has not committed to the range of ε. This paper aims to estimate the parameter ε of the constant relative inequality aversion utility function using datasets available from the Luxembourg Income Study Database. We utilise the method of estimating ε assuming incomes obey the generalised beta distribution of the second kind. The estimator of ε is derived from the mathematical condition of the existence of the social welfare function. We elaborate an ‘atlas’ of 388 estimates of ε for 55 countries across time. We also verify two hypotheses: 1) The richer the country, the greater the societal inequality aversion; 2) The greater (lower) the inequality aversion, the lower (greater) income inequality. Our data do not confirm the 1st hypothesis. For verifying the 2nd hypothesis, we use the inequality-development relationship augmented by inequality aversion. The 2nd hypothesis is unfalsified in about 90% of country-year cases.

JEL-codes: C10 D30 D60 I30 O15 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2022-01
New Economics Papers: this item is included in nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Published in A revised version was published as ""The atlas of inequality aversion: theory and empirical evidence on 55 countries from the Luxembourg Income Study database."" Equilibrium. Quarterly Journal of Economics and Economic Policy, 17, no.2 (2022): 261–316. https://doi.org/10.24136/eq.2022.010

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