An empirical welfare approach to regional income distributions: Alternative specifications and estimates of income inequality measures

The paper attempts to develop a welfare theoretical approach to the analysis and comparison of regional income differences. Three types of alternative methods are discussed, viz. (a) an a priori method of inserting parameter values in a prespecified welfare function, (b) an ex post method of deriving parameter values of a welfare function on the basis of income statistics and (c) a canonical correlation analysis on the basis of a set of underlying explanatory variables. All these three methods are used to define an income inequality measure appropriate for interregional comparisons. The methods employed are illustrated by means of empirical applications to regional income statistics in the Netherlands.