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The effect on inequality of changing one or two incomes

Author

Listed:
  • Peter Lambert,

    (Institute for Fiscal Studies)

  • Giuseppe Lanza

    (Institute for Fiscal Studies)

Abstract

We examine the effect on inequality of increasing one income, and show that for two wide classes of indices a benchmark income level or position exists, dividing upper from lower incomes, such that if a lower income is raised, inequality falls, and if an upper income is raised, inequality rises. We provide a condition on the inequality orderings implicit in two inequality indices under which the one has a lower benchmark than the other for all unequal income distributions. We go on to examine the effect on the same indices of simultaneously increasing one income and decreasing another higher up the distribution, deriving results which quantify the extent of the 'bucket leak' which can be tolerated without negating the beneficial inequality effect of the transfer. Our results have implications for the inequality impacts of different income growth patterns, and of redistributive programmes (leaky or not), which are briefly discussed. Keywords: inequality index, inequality ordering, leaky bucket.

Suggested Citation

  • Peter Lambert, & Giuseppe Lanza, 2003. "The effect on inequality of changing one or two incomes," IFS Working Papers W03/15, Institute for Fiscal Studies.
    • Handle: RePEc:ifs:ifsewp:03/15
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    File URL: http://www.ifs.org.uk/wps/wp0315.pdf
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    References listed on IDEAS

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    Cited by:

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    3. 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.
    4. Camacho Cuena, Eva & Neugebauer, Tibor & Seidl, Christian, 2005. "Compensating justice beats leaky buckets: an experimental investigation," Economics Working Papers 2005-06, Christian-Albrechts-University of Kiel, Department of Economics.

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    More about this item

    Keywords

    inequality index; inequality ordering; leaky bucket.;
    All these keywords.

    JEL classification:

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

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