Fairness and inequality tolerance: Evidence from the Life in Transition Survey

This paper examines the link between inequality and individual well-being using household survey data from 27 transition economies, where income inequality increased considerably since 1989. A test of inequality aversion in individual preferences that draws on the Fehr and Schmidt (1999) specification of inequality aversion is proposed, and the difficulties of implementing it in a non-experimental setting are discussed. Estimates based on this model confirm aversion to inequality among individuals both in the pooled sample and separately among the EU and non-EU countries. The Gini index, on the other hand, is unable to capture this negative effect of inequality on well-being. Notably, inequality aversion is not intrinsic. Rather, it appears to be tied to a concern with the fairness of the institutions underlying the distribution of fortunes in society. The evidence is suggestive of inequality of opportunity driving attitudes toward overall inequality.     

Equity-regarding poverty measures: differences in needs and the role of equivalence scales

Abstract .  The paper investigates the definition of equity-regarding poverty measures when there are different household types in the population. It demonstrates the implications of a between-type regressive transfer principle for poverty measures, for the choice of poverty lines, and for the measurement of living standard. The role of equivalence scales, which are popular in empirical work on poverty measurement, is clarified.     

PARETO HONOURING POVERTY REDUCTION

Policy reforms often pit the poor against the poor by triggering a fall in poverty for some but an increase in poverty for others. Aggregated national measures gloss over these fine patterns and pronounce ‘a reduction in poverty’– is such aggregation across poor individuals ethically permissible? Addressing this type of aggregation is a hard issue. This paper has made an attempt in that direction by outlining an axiomatically grounded aggregate measure of such gains or losses, duly giving more importance to the losses to a poor compared to the gains of another poor.     

An aspect of variable population poverty comparisons

This paper demonstrates that the property of Replication Invariance, generally considered to be an innocuous requirement for the extension of fixed-population poverty comparisons to variable-population contexts, is incompatible with other plausible variable- and fixed-population axioms. This fact raises questions about what constitutes an appropriate headcount assessment of poverty, in terms of whether one should focus on the proportion, or the absolute numbers, of the population in poverty. This observation, in turn, has important implications for tracking poverty and setting targets for its reduction or elimination.     

Poverty growth in Scandinavian countries: A Sen multi-decomposition

We show in this paper that the growth rate of the Sen index is multi-decomposable, that is, decomposable simultaneously by subgroups and income sources. The multi-decomposition of the poverty growth yields respectively: the growth rate of the poverty incidence (poverty rate) decomposed by subgroups, the growth rate of the poverty depth (poverty gap ratios) decomposed by sources and subgroups, and the growth rate of inequality decomposed by sources and subgroups. We demonstrate that the multi-decomposition is not unique. It is mainly dependent on poverty lines defined on the space of income sources. An application to Scandinavian countries shows that poverty lines based on non-correlation between the income sources imply serious risks of underestimation of the contribution levels of the different components of the global poverty growth. The main contribution of our paper is to pay particular attention to the poverty growth and its source components in order to avoid underestimation of poverty growth.     

INEQUALITY AND POVERTY IN JAPAN*

This paper presents a brief survey of inequality and poverty in Japan. It shows empirical evidence on the extent of both inequality in income distribution and of poverty rates; the paper discusses the cause of increases in both these variables, and the implication of such trends. The paper goes on to argue the difference between inequality of opportunity and inequality of outcome and shows some related empirical evidence. Finally, the paper investigates the relationship between economic efficiency and equity, supposed to be in a trade‐off relationship, and presents my personal view of that relationship and policy recommendations.     

Chronic and transient poverty: Measurement and estimation, with evidence from China

The paper contributes to the measurement of poverty and vulnerability in three ways. First, it proposes a new approach to separating poverty into chronic and transient components. Second, it provides corrections for the statistical biases introduced when using a small number of periods to estimate the importance of vulnerability and transient poverty. Third, it applies these tools to the measurement of chronic and transient poverty in China using a rich panel data set that extends over 17 years. Alternative measurement techniques are found to yield significantly different estimates of the relative importance of chronic and transient poverty. The precision of the estimates is also considerably enhanced by simple statistical corrections.     

A NEW MULTIPLICATIVE DECOMPOSITION FOR THE FOSTER–GREER–THORBECKE POVERTY INDICES

This paper shows that Foster–Greer–Thorbecke poverty indices can be written as the product of components summarizing the incidence, intensity and inequality dimensions of poverty and provides an empirical illustration of the decomposition using Spanish household budget surveys data.     

Is the Age Gradient in Self‐Reported Material Hardship Explained By Resources,Needs, Behaviors,or Reporting Bias?

Older people report much less hardship than younger people in a range of contexts, despite lower incomes. Hardship indicators are increasingly influential, so the source of this age gradient has considerable policy implications. We propose a theoretical and empirical strategy to decompose the sources of this relationship. We exploit a unique feature of the Household, Income and Labour Dynamics Australia (HILDA) survey, which collects reports of hardship from all adult household members. This facilitates within‐couple estimates, allowing us to identify age‐related reporting bias. The majority of the raw age–hardship gradient is explained by observed resources, particularly wealth and home ownership. One third of the relationship is explained by unobserved differences between households, which we interpret as age‐related behavioral choices. Reporting error does not appear to contribute to the age gradient.     

A second chance at success: A political economy perspective

This paper characterizes a stationary Markov-perfect political equilibrium where agents vote over income taxation that distorts educational investment. Agents become rich or poor through educational investment, and the poor have a second chance at success. The results show the following concerning the cost of a second chance. First, when the cost is low, the economy is characterized by high levels of upward mobility and inequality, and a low tax burden supported by the poor with prospects for upward mobility. Second, when the cost is high, there are multiple equilibria with various patterns of upward mobility, inequality and redistribution. Numerical examples show that the shift from a high-cost economy to a low-cost economy may reduce social welfare.