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Inequality Measurement and The Rich: Why Inequality Increased More Than We Thought

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  • Frank A. Cowell
  • Emmanuel Flachaire

Abstract

To compare income and wealth distributions and to assess the effects of policy that affect those distributions require reliable inequality‐measurement tools. However, commonly used inequality measures such as the Gini coefficient have an apparently counter‐intuitive property: income growth among the rich may actually reduce measured inequality. We show that there are just two inequality measures that both avoid this anomalous behavior and satisfy the principle of transfers. We further show that the recent increases in US income inequality are understated by the conventional Gini coefficient and explain why a simple alternative inequality measure should be preferred in practice.

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  • Frank A. Cowell & Emmanuel Flachaire, 2024. "Inequality Measurement and The Rich: Why Inequality Increased More Than We Thought," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 70(2), pages 254-277, June.
    • Handle: RePEc:bla:revinw:v:70:y:2024:i:2:p:254-277
    DOI: 10.1111/roiw.12638
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    References listed on IDEAS

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    1. Atkinson, A. B. & Piketty, Thomas (ed.), 2010. "Top Incomes: A Global Perspective," OUP Catalogue, Oxford University Press, number 9780199286898.
    2. Shorrocks, A F, 1980. "The Class of Additively Decomposable Inequality Measures," Econometrica, Econometric Society, vol. 48(3), pages 613-625, April.
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    4. Richard V. Burkhauser & Shuaizhang Feng & Stephen P. Jenkins & Jeff Larrimore, 2012. "Recent Trends in Top Income Shares in the United States: Reconciling Estimates from March CPS and IRS Tax Return Data," The Review of Economics and Statistics, MIT Press, vol. 94(2), pages 371-388, May.
    5. Frank Cowell & Emmanuel Flachaire, 2021. "Inequality Measurement: Methods and Data," Post-Print hal-03589066, HAL.
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