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An Implied Income Inequality Index Using L1 Norm Estimation Of Lorenz Curve

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  • Hamid Shahrestani
  • Bijan Bidabad

Abstract

Distribution of income is among the most important issues in welfare economics. Economic literature provides different ways to measure income inequality. Most common inequality indices provide information about the income distribution and analyze the inequality of income allocation without any reference to the amount of money needed to reduce the income inequality.In this paper, we design a model to estimate the Lorenz curve function parameters. By this approach, any census summary data can be used to measure the distribution of income. We also introduce a new fiscal-compensation-based index for reduction of the degree of inequality. Using this index, we show how much transfer payment is needed to achieve the desired distribution of income consistent with the perceived economic goals of the society.

Suggested Citation

  • Hamid Shahrestani & Bijan Bidabad, 2010. "An Implied Income Inequality Index Using L1 Norm Estimation Of Lorenz Curve," Global Journal of Business Research, The Institute for Business and Finance Research, vol. 4(1), pages 29-45.
    • Handle: RePEc:ibf:gjbres:v:4:y:2010:i:1:p:29-45
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    References listed on IDEAS

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    1. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
    2. Kakwani, Nanak, 1980. "Functional Forms for Estimating the Lorenz Curve: A Reply," Econometrica, Econometric Society, vol. 48(4), pages 1063-1064, May.
    3. Kakwani, Nanak C & Podder, N, 1976. "Efficient Estimation of the Lorenz Curve and Associated Inequality Measures from Grouped Observations," Econometrica, Econometric Society, vol. 44(1), pages 137-148, January.
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    Cited by:

    1. Guglielmo D’Amico & Giuseppe Di Biase & Raimondo Manca, 2011. "Immigration Effects On Economic Systems Through Dynamic Inequality Indices," Global Journal of Business Research, The Institute for Business and Finance Research, vol. 5(5), pages 11-25.
    2. Guglielmo D’Amico & Giuseppe Di Biase & Raimondo Manca, 2015. "Measuring Income Inequality: An Application Of The Population Dynamic Theil'S Entropy," Accounting & Taxation, The Institute for Business and Finance Research, vol. 7(1), pages 103-114.

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    More about this item

    Keywords

    Income distribution; Inequality index; Lorenz curve;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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