The Intensity and Shape of Inequality: The ABG Method of Distributional Analysis

Inequality is anisotropic: its intensity varies by income level. We here develop a new tool, the isograph, to focus on local inequality and illustrate these variations. This method yields three coefficients which summarize the shape of inequality: a main coefficient, α, which measures inequality at the median; and two correction coefficients, β and γ, which pick up any differential curvature at the top and bottom of the distribution. The analysis of a set of 232 microdata samples from 41 different countries in the LIS datacenter archive allows us to provide a systematic overview of the properties of the ABG (α β γ) coefficients, which are compared to a set of standard indices including Atkinson indices, generalized entropy, Wolfson polarization, and the GB2 distribution. This method also provides a smoothing tool that reveals the differences in the shape of distributions (the strobiloid) and how these have changed over time.     

Impact of Human Capital Endowments on Inequality of Outcomes in Cameroon

This paper evaluates the impact of human capital endowments on measured inequality in Cameroon. We first estimate determinants of household economic well‐being (HEW) in which human capital endowments are considered as endogenous effort‐related regressors, while controlling for exogenous circumstance‐related variables. Second, we simulate alternative counterfactual distributions of HEW: one in which human capital endowments are equalized; and the other in which variations are entirely attributable to the unobservable terms. Finally we compare inequality in the factual distribution of household well‐being with inequality in each of the simulated distributions. Direct and indirect exogenous opportunity‐inducing circumstances are inequality‐augmenting, whereas human capital endowments are inequality‐reducing in the actual distribution. Education and health interventions will ameliorate well‐being and mitigate inequality. Thus, leveling the playing ground for individuals to have equitable exposure to education, health and labor market participation is required for a low‐income country like Cameroon to enhance equity and sustainable household economic growth.     

Decomposition of the Gini Index by Sources of Income

The Gini concentration coefficient is considered to be the best synthetic inequality measure and is widely used in economic research. In this paper, we present its decomposition by factor components with an application to income distributions in Poland. Income inequality measures proposed by Gini, Zenga and Bonferroni are calculated for different socio-economic groups based on their exclusive or primary source of maintenance. For theoretical income distribution, the Dagum type-I model was used. The basis for the calculations was the individual data coming from the Household Budgets Survey conducted quarterly by the Polish Central Statistical Office. Using the decomposition of inequality by source, we were able to examine how changes in particular income components affected overall inequality.      

Ordinal Bivariate Inequality: Concepts and Application to Child Deprivation in Mozambique

This paper introduces a concept of inequality comparisons with ordinal bivariate categorical data. In our model, one population is more unequal than another when they have common arithmetic median outcomes and the first can be obtained from the second by correlation‐increasing switches and/or median‐preserving spreads. For the canonical 2 × 2 case (with two binary indicators), we derive a simple operational procedure for checking ordinal inequality relations in practice. As an illustration, we apply the model to childhood deprivation in Mozambique.     

ECONOMIC FREEDOM & HAPPINESS INEQUALITY: FRIENDS OR FOES?

This article examines the relationship between economic freedom and happiness inequality for a large sample of countries. We find that economic freedom is negatively associated with happiness inequality and robust to several alternative measures of happiness inequality, including the standard deviation, mean absolute difference, coefficient of variation, and Gini coefficient. Among the economic freedom areas, legal system and sound money are negatively correlated with happiness inequality. Drawing on the Engerman‐Sokoloff hypothesis, we use a measure of factor endowments as an instrument for economic freedom to provide a further robustness test, finding a negative association between economic freedom and happiness inequality. (JEL D63, I31, P16)     

Inequality of opportunity in earnings and assets in Egypt

ABSTRACT

By most available measures, the level of inequality in the MENA region, including Egypt, is considered relatively low. This regularity applies to both inequality of outcomes as well as inequality of opportunity. This paper challenges this view. It argues specifically that circumstances beyond the control of individuals account for a larger share of inequality of opportunity when asset distribution is considered rather than the distribution of earnings, essentially because earnings are subject to measurement errors and idiosyncratic shocks. The paper tests this proposition by estimating the extent to which factors related to the circumstances a person is born into contribute to inequality of opportunity in earnings as well as asset ownership. The results show that circumstances account 26–32% of inequality of asset distribution, compared with only 8–10% of inequality of opportunity in earnings. The analysis further shows that the area of birth and fathers education level are the two most important circumstance factors contributing to inequality of opportunity, for both assets and earnings.     

Income or Consumption: Which Better Predicts Subjective Well‐Being?

The positive relationship between income and subjective well‐being has been well documented. However, work assessing the relationship of alternative material well‐being metrics to subjective well‐being (SWB) is limited. Consistent with the permanent income hypothesis, we find that a consumption‐based measure out‐performs (surveyed) income in predicting subjective well‐being. When objective measures of consumption are combined with self‐assessments of a household’s standard of living, income becomes insignificant altogether. We obtain our result utilizing household‐level data from Statistics New Zealand’s New Zealand General Social Survey which contains measures of income, SWB and a measure of material well‐being called the Economic Living Standard Index that combines measures of consumption flows and self‐assessments of material well‐being.     

Intragenerational mobility and the ratio of permanent to total inequality

This article provides finite sample conditions for the ratio of permanent to total inequality based on methods of Gottschalk and Moffitt (1994) to be equivalent to the Shorrocks R constructed with a Theil General Entropy Index. A simple test emerges of whether the two measures can be seen as equivalent that reveals the implicit social weighting placed on different parts of the income distribution by the Gottschalk–Moffitt methods. Using data from the PSID and the SOEP for annual income from 1984 through 2006, the condition for the two measures to be equivalent is found to be satisfied in both data sets.     

Misperceiving inequality

A vast literature suggests that economic inequality has important consequences for politics and public policy. Higher inequality is thought to increase demand for income redistribution in democracies and to discourage democratization and promote class conflict and revolution in dictatorships. Most such arguments crucially assume that ordinary people know how high inequality is, how it has been changing, and where they fit in the income distribution. Using a variety of large, cross‐national surveys, we show that, in recent years, ordinary people have had little idea about such things. What they think they know is often wrong. Widespread ignorance and misperceptions emerge robustly, regardless of data source, operationalization, and measurement method. Moreover, perceived inequality—not the actual level—correlates strongly with demand for redistribution and reported conflict between rich and poor. We suggest that most theories about political effects of inequality need to be reframed as theories about effects of perceived inequality.     

Poverty,inequality and growth in Albania

This article studies the distribution of well‐being and, specifically, the degree of poverty and deprivation in Albania, in the years 2002 and 2005, using Living Standard Measurement Surveys (LSMS). The distribution analysis is performed by applying both one‐dimensional and multidimensional approaches, in particular to better examine the link between economic growth, inequality and poverty in Albania. Furthermore, by estimating a non‐monetary indicator, as proposed by Bossert et al. ( 2007 ), and a nonlinear principal component model together with a probit model, the paper focuses on the multidimensional measures of poverty to address the relationship between poverty and socio‐economic factors. Our evidence shows that absolute poverty decreased from 2002 to 2005 while national relative poverty increased; economic growth reduced poverty in Albania over the observed period; and living in rural and mountain areas, being female, poorly educated and with a large family increased the probability of suffering from deprivation.     

Viewpoint: Measuring the well‐being of the poor with income or consumption: a Canadian perspective

Abstract There is a long tradition of using consumption measures derived from Statistics Canada's household expenditures surveys to study material well‐being, inequality, and poverty. We offer an introduction to this research. Income and consumption measures give different pictures of the patterns of material well‐being in Canada, but the differences are not as large as in the US. We also provide a comparison to Meyer and Sullivan's results on data quality. Canadian expenditure surveys are of high quality. Unique aspects of these surveys (variation in quality control measures over time and the possibility of comparing to income tax data) provide important insights into the quality of survey data on income and consumption.     

International income inequality, 2005–2011: what a difference 6 years can make

While much attention has recently been given to the rising inequality in high-income countries, particularly the US, inequality across countries has received less attention. Based on reports of the International Comparison Program, which provide the most accurate measures of PPP income at the country level, this study computes three highly recommended measures of intercountry income inequality for the years 2005 and 2011. A dramatic, and perhaps unprecedented, fall in intercountry inequality over the relatively short period of 6 years is noted. As a correlate of the fall in intercountry inequality, aggregate PPP GDP for six major high-income countries is compared with that for three large developing countries, and the dramatic increase over the 6-year period in the ratio of the total GDP of the three developing countries to that for the six high-income countries is noted, thus extending, from the most accurate data, the theme of the ‘rise of the South’ articulated in Human Development Report 2013.     

Bread and Social Justice: Measurement of Social Welfare and Inequality Using Anthropometrics

We address the question of the measurement of health achievement and inequality in the context of variables exhibiting an inverted-U relation with health and well-being. The chosen approach is to measure separately achievement and inequality in the health increasing range of the variable, from a lower survival bound a to an optimum value m, and in the health decreasing range from m to an upper survival bound b. Because in the health decreasing range, the equally distributed equivalent value associated with a distribution is decreasing in progressive transfers, the paper introduces appropriate relative and absolute achievement and inequality indices to be used for variables exhibiting a negative association with well-being. We then discuss questions pertaining to consistent measurement across health attainments and shortfalls, as well as the ordering of distributions exhibiting an inverted-U relation with well-being. An illustration of the methodology is provided using a group of five Arab countries.     

MEASURING NON‐ECONOMIC WELL‐BEING ACHIEVEMENT

Income per capita and most widely reported, non‐ or non‐exclusively income based human well‐being indicators are highly correlated among countries. Yet many countries exhibit higher achievement in the latter than predicted by the former. The reverse is true for many other countries. This paper commences by extracting the inter‐country variation in a composite of various widely‐reported, non‐income‐based well‐being indices not accounted for by variations in income pre capita. This extraction is interpreted inter alia as a measure of non‐economic well‐being. The paper then looks at correlations between this extraction and a number of new or less widely‐used well‐being measures, in an attempt to find the measure that best captures these achievements. A number of indicators are examined, including measures of poverty, inequality, health status, education status, gender bias, empowerment, governance and subjective well‐being.     

A Note on α‐Gini Measures

This note provides a characterization of α‐Gini inequality measures. These measures generalize the standard Gini index by including one sensitivity parameter α, which captures different value judgments. The α‐Gini measures are shown to be weakly decomposable and unit consistent. Weak decomposition provides within‐group and between‐group inequalities. Unit consistency keeps unchanged the ranking of two income distributions when the income units vary. It is shown that the α‐Gini measures are relevant with either “leftist” or“rightist” views.     

MEASURING THE IMPACT OF VALUING HEALTH INSURANCE ON LEVELS AND TRENDS IN INEQUALITY AND HOW THE AFFORDABLE CARE ACT OF 2010 COULD AFFECT THEM

A substantial part of the U.S. inequality literature focuses on yearly levels and trends in pre‐tax, post‐transfer cash income and its distribution over time and finds that median income appears to be stagnating, with income growth primarily coming at higher income levels. When we use data from the Current Population Survey for 1995–2008 and add the value of employer‐ and government‐provided health insurance coverage, not only does it increase the upward trend in the level of resources controlled by Americans, but also reduces the level of inequality in these resources and its upward trend. We then provide a highly stylized example of this broader income measure's value in capturing the impact of two key provisions of the Affordable Care Act of 2010—an expansion in Medicaid and the provision of subsidies to lower‐income families for purchasing private coverage on state‐run exchanges. Even though these incremental expansions build on existing systems of government‐provided health insurance, we find that the vast majority of the benefits would still accrue to the bottom three deciles of the income distribution when we include the value of employer‐ and government‐provided health insurance in our expanded yearly income measure. (JEL D31, H51, I14)     

International inequality in subjective well‐being: An exploration with the Gallup World Poll

In this paper we compute inequality measures over the distribution of a subjective well‐being variable constructed from a life satisfaction question included in the Gallup World Poll in almost all countries in the world. We argue that inequality in subjective well‐being may be a better proxy for the degree of unfairness in a society than income inequality. We find evidence that inequality in subjective well‐being has an inverse‐U relationship with per capita GDP , but it is monotonically decreasing with respect to mean subjective well‐being. We argue that this difference might be associated to inequality aversion in the space of utility.     

Multidimensional welfare distributions: empirical application to household panel data from Vietnam

This article explores the empirical application of theoretical multidimensional welfare distribution analysis techniques to real household welfare distributions. The article operationalizes recent conceptual developments in multidimensional distribution theory and assesses their usefulness for the measurement of multidimensional household inequality. The results strongly highlight the importance of bringing nonmonetary aspects of household welfare into the forefront of inequality analysis. Agreement over the various approaches to the measurement of multidimensional inequality entails, however, nontrivial decisions that may limit the practical usefulness of these measures. We suggest that the use of multidimensional inequality ranges and the application of restrictive dominance criteria to multidimensional welfare distributions may open significant scope for further developments in the empirical analysis of multidimensional inequality.     

DO STOCK RETURNS VARY WITH CAMPAIGN CONTRIBUTIONS? BUSH VS. GORE: THE FLORIDA RECOUNT

I examine the relation between campaign contributions and stock returns during the Florida recount period of the 2000 presidential elections. Using the full population of publicly traded firms, I find an economically significant positive (negative) relation between pre‐election campaign contributions to Bush (Gore) and stock returns during the 37‐day election recount period. This relation exists for both the level and partisanship of contributions, and exists incrementally at both the firm and industry levels. These relations are robust to several different specifications, including alternative event windows that exclude the potentially confounding House/Senate races. The firm‐level analysis is consistent with contributions being influence‐motivated.     

Regional Inequality and Internal Conflict

This paper studies the influence of regional inequality within countries on internal conflicts. Regional inequalities are measured by the population‐weighted coefficient of variation of regional GDP per capita. As the main innovation, I use a panel dataset of country‐level regional inequalities, which covers 56 countries (835 subnational regions) between 1980 and 2009. I also consider a broader cross section dataset for the year 2005, which covers 110 countries (1569 subnational regions). Conflict is measured by the incidence of civil war (UCDP/PRIO data) and a risk measure of internal conflict (war, terrorism and riots) provided by the PRS Group's International Country Risk Guide. Logit estimations are employed as well as OLS fixed effects panel regressions. I find that regional inequalities increase the risk of internal conflict.