Measuring Unfair Inequality: Reconciling Equality of Opportunity and Freedom from Poverty

50 Pages Posted: 23 Aug 2018

See all articles by Paul Hufe

Paul Hufe

Ludwig Maximilian University of Munich (LMU)

Ravi Kanbur

Cornell University; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Andreas Peichl

ZEW – Leibniz Centre for European Economic Research; University of Mannheim - School of Economics (VWL); IZA Institute of Labor Economics; University of Essex - Institute for Social and Economic Research (ISER)

Date Written: June 26, 2018

Abstract

Rising income inequalities are widely debated in public and academic discourse. In this paper, we contribute to this debate by proposing a new family of measures of unfair inequality. To do so, we acknowledge that inequality is not bad per se, but that its underlying sources need to be taken into account. Thereby, this paper is the first to reconcile two prominent fairness principles, namely equality of opportunity and freedom from poverty, into a joint measure of unfair inequality. Two empirical applications provide important new insights on the development of unfair inequality both over time (in the US) and across countries (in Europe). First, unfair inequality shows different time trends and country rankings compared to total inequality. Second, average unfair inequality doubles when complementing the ideal of an equal opportunity society with poverty aversion. Furthermore, we show that an exclusive focus on top incomes may misguide fairness judgments.

Keywords: inequality, equality of opportunity, poverty, fairness, measurement

JEL Classification: D310, D630, I320

Suggested Citation

Hufe, Paul and Kanbur, Ravi and Peichl, Andreas, Measuring Unfair Inequality: Reconciling Equality of Opportunity and Freedom from Poverty (June 26, 2018). CESifo Working Paper Series No. 7119. Available at SSRN: https://ssrn.com/abstract=3235216

Paul Hufe

Ludwig Maximilian University of Munich (LMU) ( email )

Geschwister-Scholl-Platz 1
Munich, DE Bavaria 80539
Germany

Ravi Kanbur

Cornell University ( email )

301-J Warren Hall
Ithaca, NY 14853
United States
607-255-7966 (Phone)
607-255-9984 (Fax)

HOME PAGE: http://www.kanbur.dyson.cornell.edu

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Andreas Peichl (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

University of Mannheim - School of Economics (VWL) ( email )

Mannheim 68131
Germany

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

University of Essex - Institute for Social and Economic Research (ISER)

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

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