Aggregation Issues in Inequality Measurement

AbstractWe provide a critique of the standard methodology for inequality measurement, which makes welfare comparisons between households by deflating household income and consumption with an equivalence scale. We argue that this leads to support for tax/transfer policies that significantly disadvantage low to middle income households and second earners—predominantly women. Its main limitations are that it takes an overly-simplistic approach to household production, bases its welfare measurements on joint household income, and has no theory of the family household. We point the way to an alternative procedure by presenting a theoretical model of the family household that derives duality-based welfare measures. In the light of current data limitations we propose, as a second best, primary earner income as a superior base to joint income for across-household welfare comparisons in policy formulation. We also emphasise the importance of taking the family life cycle into account when making such comparisons. We use the Australian income tax system and Australian income and tax data for a detailed comparison of the standard approach with our proposed alternative.

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Revisiting Between-Group Inequality Measurement : An Application To The Dynamics Of Caste Inequality In Two Indian Villages

10.1596/1813-9450-5337 ◽

2010 ◽

Cited By ~ 1

Author(s):

Peter Lanjouw ◽

Vijayendra Rao

Keyword(s):

Inequality Measurement ◽

Group Inequality

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Inequality (Measurement)

The New Palgrave Dictionary of Economics ◽

10.1057/978-1-349-95189-5_2117 ◽

2018 ◽

pp. 6393-6403

Author(s):

F. A. Cowell

Keyword(s):

Inequality Measurement

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Inequality

Theory of Macroeconomic Policy ◽

10.1093/oso/9780198825371.003.0010 ◽

2020 ◽

pp. 565-604

Author(s):

Christopher Tsoukis

Keyword(s):

Income Distribution ◽

Endogenous Growth ◽

Growth Models ◽

Inequality Measurement ◽

Capital Income ◽

Representative Agent ◽

Macroeconomic Models ◽

Measurement Issues ◽

Labour Share ◽

Endogenous Growth Models

By whatever indicator it is assessed, inequality has been rising in recent years. This book considers it a macroeconomic issue and innovates by including it among its topics. The chapter begins by reviewing evidence and facts on inequality, measurement issues, and the relation with poverty. The macroeconomic models of income distribution reviewed next include vintage models, endogenous growth models, and whether inequality can be accommodated in ‘representative-agent’ models. Attention then turns to ‘factor’ (labour-capital) income shares, which have also been changing recently, reviewing both the relevant analytics and the possible processes that underlie this change. The chapter concludes with recent debates on determinants of inequality, the evolution of the labour share (the ‘r-g’ question), and the future of income distribution.

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