Decomposing Inequality and Social Welfare Changes: The Use of Alternative Welfare Metrics

John Creedy and Nicolas Hérault

No 18714, Working Paper Series from Victoria University of Wellington, Chair in Public Finance

Abstract: This paper presents two ‘non-welfarist’ approaches and one ‘welfarist’ approach to decompose changes in inequality and social welfare into three components: population, tax policy and labour supply effects. As an illustration, changes in inequality and in values of a social welfare function in Australia between 2001 and 2006 are examined. Inequality is first defined in non-welfarist terms as a function of disposable income: the independent judge places no value on leisure. Then this is modified to allow for evaluations using a weighted geometric mean of disposable income and leisure. This is seen to modify the evaluation of changes in important ways. Furthermore, the results are shown to be quite different from those obtained using a ‘welfarist’ evaluation in terms of money metric utility, where separate behavioural effects cannot be isolated.

Keywords: Social Welfare; Inequality; Alternative Welfare Metrics (search for similar items in EconPapers)
Date: 2012
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https://ir.wgtn.ac.nz/handle/123456789/18714

Related works:
Working Paper: Decomposing Inequality and Social Welfare Changes: The Use of Alternative Welfare Metrics (2011)
Working Paper: Decomposing Inequality and Social Welfare Changes: The Use of Alternative Welfare Metrics (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:vuw:vuwcpf:18714

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