Explicit normative measurement of the degree of income inequality

Summary This paper deals with the problem how to measure the degree of inequality implied by a certain distribution of personal incomes. Traditional approaches to this subject, including statistical and welfare-based indicators, possess some important short-comings. As an alternative procedure this paper proposes the use of explicit normative concepts, by defining indicators which measure the divergence between an actual income distribution and a target or desirable one. Several indicators are given. The problem how to specify a target distribution is discussed, and a tractable procedure is indicated. This is applied to both actual and simulated income data. The examples serve only as illustrations of the approach proposed and use of the indicators for actual policy evaluation still requires more data.The author wishes to thank Henk van Metelen and Arend Stemerding for research assistance, and Simon Kuipers, Peter Nijkamp and Jan Tinbergen for their stimulating remarks on an earlier draft of this paper. Of course, they are not responsible for errors and do not necessarily share the opinion expressed in this paper. This paper has been presented at the Econometric Society European Meeting, Helsinki, August 1976. An extensive discussion of different aspects of income distribution is contained in Bartels (1977).