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

Author

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  • Frank A Cowell

    (LSE - London School of Economics and Political Science)

  • Emmanuel Flachaire

    (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

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.

Suggested Citation

  • Frank A Cowell & Emmanuel Flachaire, 2023. "Inequality Measurement and The Rich: Why Inequality Increased More Than We Thought," Post-Print hal-04064329, HAL.
    • Handle: RePEc:hal:journl:hal-04064329
    DOI: 10.1111/roiw.12638
    Note: View the original document on HAL open archive server: https://amu.hal.science/hal-04064329
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    References listed on IDEAS

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    1. 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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    3. Frank A. Cowell & Emmanuel Flachaire, 2017. "Inequality with Ordinal Data," Economica, London School of Economics and Political Science, vol. 84(334), pages 290-321, April.
    4. Anthony Atkinson & Thomas Piketty, 2010. "Top Incomes : A Global Perspective," PSE-Ecole d'économie de Paris (Postprint) halshs-00754875, HAL.
    5. Shorrocks, Anthony F, 1984. "Inequality Decomposition by Population Subgroups," Econometrica, Econometric Society, vol. 52(6), pages 1369-1385, November.
    6. Atkinson, A. B. & Piketty, Thomas (ed.), 2010. "Top Incomes: A Global Perspective," OUP Catalogue, Oxford University Press, number 9780199286898.
    7. 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.
    8. Frank Cowell & Emmanuel Flachaire, 2021. "Inequality Measurement: Methods and Data," Post-Print hal-03589066, HAL.
    9. Peter Lambert & Giuseppe Lanza, 2006. "The effect on inequality of changing one or two incomes," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 4(3), pages 253-277, December.
    10. Foster, James E. & Shneyerov, Artyom A., 2000. "Path Independent Inequality Measures," Journal of Economic Theory, Elsevier, vol. 91(2), pages 199-222, April.
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    Cited by:

    1. Satya R. Chakravarty & Palash Sarkar, 2023. "New perspectives on the Gini and Bonferroni indices of inequality," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 60(1), pages 47-64, January.
    2. Marrero,Gustavo Alberto & Rodríguez,Juan Gabriel & Van Der Weide,Roy, 2021. "Does Race and Gender Inequality Impact Income Growth ?," Policy Research Working Paper Series 9865, The World Bank.
    3. Juan C Palomino & Gustavo A Marrero & Brian Nolan & Juan G Rodríguez, 2022. "Wealth inequality, intergenerational transfers, and family background [Intergenerational wealth mobility and the role of inheritance: Evidence from multiple generations]," Oxford Economic Papers, Oxford University Press, vol. 74(3), pages 643-670.
    4. Leventi, Chrysa & Katsimi, Margarita & Tsakloglou, Panos, 2022. "Going regional: distributional effect of taxes and transfers in six EU countries and the UK," Centre for Microsimulation and Policy Analysis Working Paper Series CEMPA4/22, Centre for Microsimulation and Policy Analysis at the Institute for Social and Economic Research.
    5. Satya R. Chakravarty & Palash Sarkar, 2023. "Notes on the postulate of the monotonicity in distance in inequality," Bulletin of Economic Research, Wiley Blackwell, vol. 75(2), pages 312-322, April.
    6. Martin Ravallion & Shaohua Chen, 2022. "Is that really a Kuznets curve? Turning points for income inequality in China," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 20(4), pages 749-776, December.
    7. Martin Ravallion, 2018. "What might explain today's conflicting narratives on global inequality?," WIDER Working Paper Series wp-2018-141, World Institute for Development Economic Research (UNU-WIDER).
    8. Arthur Charpentier & Emmanuel Flachaire, 2024. "Oaxaca-Blinder decomposition of changes in means and inequality: A simultaneous approach," Economics Bulletin, AccessEcon, vol. 44(1), pages 308-320.
    9. Pablo Gutiérrez Cubillos, 2022. "Gini and undercoverage at the upper tail: a simple approximation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(2), pages 443-471, April.
    10. Juan C. Palomino & Gustavo A. Marrero & Brian Nolan & Juan G. Rodriguez, 2020. "Wealth inequality, intergenerational transfers and socioeconomic background," Working Papers 537, ECINEQ, Society for the Study of Economic Inequality.
    11. Martin Ravallion, 2018. "What might explain today’s conflicting narratives on global inequality?," WIDER Working Paper Series 141, World Institute for Development Economic Research (UNU-WIDER).

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    More about this item

    Keywords

    Gini coefficient; inequality measures; median; Gini coefficient inequality measures median;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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