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Charting Income Inequality: The Lorenz Curve

Author

Listed:
  • Bellù, Lorenzo G.
  • Liberati, Paolo

Abstract

This paper explains how to build Lorenz Curves for income distributions and discusses their use for inequality measurement. A short conceptual background, a step-by-step procedure and a simple numerical example illustrate how to calculate and draw Lorenz Curves. A discussion on the use of Lorenz Curves to represent inequality is also provided. It highlights that the Lorenz Curve is one of the most used ways of representing income distributions in empirical works thanks to its immediate comparability with a “natural” benchmark, the Equidistribution line, representing the most egalitarian distribution. The concepts of Lorenz dominance and intersection of Lorenz Curves are also discussed. Furthermore, the appendix provides a detailed presentation of the properties of the Lorenz Curves.

Suggested Citation

  • Bellù, Lorenzo G. & Liberati, Paolo, 2005. "Charting Income Inequality: The Lorenz Curve," MPRA Paper 30063, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:30063
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    File URL: https://mpra.ub.uni-muenchen.de/30063/1/MPRA_paper_30063.pdf
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    More about this item

    Keywords

    Lorenz curves; income distribution; inequality measures; Lorenzo dominance; equidistribution line; inequality; poverty;
    All these keywords.

    JEL classification:

    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D30 - Microeconomics - - Distribution - - - General
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values
    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • J4 - Labor and Demographic Economics - - Particular Labor Markets
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • J5 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining

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