Welfare Inequality versus Income Inequality

22 Pages Posted: 28 Jan 2022 Last revised: 24 Feb 2024

See all articles by Carlos D. Ramirez

Carlos D. Ramirez

George Mason University - Department of Economics

Date Written: January 27, 2022

Abstract

Recent research has documented a rise in income and wealth inequality to levels not observed since the Gilded Age. This paper argues that focusing on income inequality trends masks gains in relative welfare over time. For a given a distribution of income, welfare differences among different social classes converge if the relative price of manufactured goods declines over time. Using a simplified version of Matsuyama (2002)’s Flying Geese model this paper shows that, if initial productivity levels are low, the distribution of income may need to be very unequal to obtain welfare convergence.

Keywords: Welfare inequality, Welfare convergence, Income inequality

JEL Classification: D63, I31

Suggested Citation

Ramirez, Carlos D., Welfare Inequality versus Income Inequality (January 27, 2022). GMU Working Paper in Economics No. 22-04, Available at SSRN: https://ssrn.com/abstract=4019677 or http://dx.doi.org/10.2139/ssrn.4019677

Carlos D. Ramirez (Contact Author)

George Mason University - Department of Economics ( email )

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