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The atlas of inequality aversion: theory and empirical evidence on 55 countries from the Luxembourg Income Study database

Author

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  • Stanislaw Maciej Kot

    (Gdansk University of Technology, Poland)

  • Piotr R. Paradowski

    (Gdansk University of Technology, Poland; Luxembourg Income Study (LIS), Luxembourg)

Abstract

Research background: In the distributive analysis, the constant relative inequality aversion utility function is a standard tool for ethical judgements of income distributions. The sole parameter ? of this function expresses a society’s aversion to inequality. However, the profession has not committed to the range of ?. When assessing inequality and other welfare characteristics, analysts assume an arbitrary level of ?, common to all countries and years. This assumption seems unjustified. Purpose of the article: This paper aims to estimate the parameter ? for each country and year individually using datasets from the Luxembourg Income Study Database in all available years, which dates back to the 1970s. Methods: We utilise the method of estimating ?, which assumes the generalised beta of the second kind distribution of incomes. The estimator of ? is derived from the mathematical condition of the existence of the social welfare function. Findings & value added: We have elaborated an ‘atlas’ of 388 estimates of ? for 55 countries across time. Inequality aversion is country-year specific, with a minimum of 0.97 and a maximum of 3.8. Ninety per cent of all estimates are less than 2.5. Inequality aversion is negatively correlated with income inequality, but it is independent of economic development. Thus, inequality aversion appears as an additional dimension of the classical inequality-development relationship. This article contributes to solving a fundamental problem of Welfare Economics: directly measuring the social utility of income (welfare) function. The estimates of ? for 55 countries imply a complete knowledge of these countries' constant relative inequality aversion utility functions.

Suggested Citation

  • Stanislaw Maciej Kot & Piotr R. Paradowski, 2022. "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, Institute of Economic Research, vol. 17(2), pages 261-316, June.
    • Handle: RePEc:pes:ierequ:v:17:y:2022:i:2:p:261-316
    DOI: 10.24136/eq.2022.010
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    References listed on IDEAS

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    1. David Aristei & Cristiano Perugini, 2016. "Inequality aversion in post-communist countries in the years of the crisis," Post-Communist Economies, Taylor & Francis Journals, vol. 28(4), pages 436-448, October.
    2. Stanislaw Maciej Kot, 2017. "Estimating Inequality Aversion From Subjective Assessments Of The Just Noticeable Differences In Welfare," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 12(1), pages 123-146, March.
    3. Yoram Amiel & John Creedy & Stan Hurn, 1999. "Measuring Attitudes Towards Inequality," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(1), pages 83-96, March.
    4. repec:pes:ierequ:v:11:y:2016:i:4:p:123-146 is not listed on IDEAS
    5. Stanislaw Maciej Kot, 2020. "Estimating the parameter of inequality aversion on the basis of a parametric distribution of incomes," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 15(3), pages 391-417, September.
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    Cited by:

    1. Louis Chauvel, 2023. "Isograph and LaSiPiKa Distribution: The Comparative Morphology of Income Inequalities and Intelligible Parameters of 53 LIS Countries 1967-2020," LIS Working papers 852, LIS Cross-National Data Center in Luxembourg.

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    More about this item

    Keywords

    inequality aversion; Atkinson Index; income distribution; inequality; utility function;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • D30 - Microeconomics - - Distribution - - - General
    • D60 - Microeconomics - - Welfare Economics - - - General
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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