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On the Measurement of Long-Term Income Inequality and Income Mobility

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  • Aaberge, Rolf

    (Statistics Norway)

  • Mogstad, Magne

    (University of Chicago)

Abstract

This paper proposes a two-step aggregation method for measuring long-term income inequality and income mobility, where mobility is defined as an equalizer of long-term income. The first step consists of aggregating the income stream of each individual into a measure of permanent income, which accounts for the costs associated with income fluctuations and allows for credit market imperfections. The second step aggregates permanent incomes across individuals into measures of social welfare, inequality and mobility. To this end, we employ an axiomatic approach to justify the introduction of a generalized family of rank-dependent measures of inequality, where the distributional weights, as opposed to the Mehran-Yaari family, depend on income shares as well as on population shares. Moreover, a subfamily is shown to be associated with social welfare functions that have intuitively appealing interpretations. Further, the generalized family of inequality measures provides new interpretations of the Gini-coefficient.

Suggested Citation

  • Aaberge, Rolf & Mogstad, Magne, 2010. "On the Measurement of Long-Term Income Inequality and Income Mobility," IZA Discussion Papers 4699, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp4699
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    Cited by:

    1. John Creedy & Elin Halvorsen & Thor O. Thoresen, 2013. "Inequality Comparisons In A Multi-Period Framework: The Role Of Alternative Welfare Metrics," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 59(2), pages 235-249, June.
    2. Flaviana Palmisano, 2011. "Mobility and Long term Equality of Opportunity," SERIES 0035, Dipartimento di Economia e Finanza - Università degli Studi di Bari "Aldo Moro", revised Feb 2011.
    3. Aaberge, Rolf & Mogstad, Magne & Peragine, Vito, 2011. "Measuring long-term inequality of opportunity," Journal of Public Economics, Elsevier, vol. 95(3-4), pages 193-204, April.
    4. Sami Bibi & Jean-Yves Duclos & Abdelkrim Araar, 2014. "Mobility, taxation and welfare," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 42(3), pages 503-527, March.
    5. Antonio Abatemarco, 2017. "Evaluating Economic Mobility under Opportunity Egalitarianism," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(12), pages 260-277, December.
    6. Dirk Van de gaer & Flaviana Palmisano, 2018. "Growth, mobility and social welfare," Working Papers 476, ECINEQ, Society for the Study of Economic Inequality.
    7. Van de gaer, Dirk & Palmisano, Flaviana, 2021. "Growth, mobility and social progress," Journal of Comparative Economics, Elsevier, vol. 49(1), pages 164-182.
    8. Rolf Aaberge & A B Atkinson, 2013. "The median as watershed," Discussion Papers 749, Statistics Norway, Research Department.
    9. John Creedy & Elin Halvorsen & Thor O. Thoresen, 2013. "Inequality Comparisons In A Multi-Period Framework: The Role Of Alternative Welfare Metrics," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 59(2), pages 235-249, June.

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    More about this item

    Keywords

    income inequality; income mobility; social welfare; Gini coefficient; permanent income; credit market; annuity;
    All these keywords.

    JEL classification:

    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty

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