The Effect on Inequality of Changing One or Two Incomes

University of Oregon Economics Working Paper No. 2003-15

23 Pages Posted: 22 Sep 2003

See all articles by Peter J. Lambert

Peter J. Lambert

University of Oregon - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Giuseppe Lanza

Universita di Palermo

Abstract

We examine the effect on inequality of increasing one income, and show that for two wide classes of indices a benchmark income level or position exists, dividing upper from lower incomes, such that if a lower income is raised, inequality falls, and if an upper income is raised, inequality rises. We provide a condition on the inequality orderings implicit in two inequality indices under which the one has a lower benchmark than the other for all unequal income distributions. We go on to examine the effect on the same indices of simultaneously increasing one income and decreasing another higher up the distribution, deriving results which quantify the extent of the "bucket leak" which can be tolerated without negating the beneficial inequality effect of the transfer. Our results have implications for the inequality impacts of different income growth patterns, and of redistributive programmes (leaky or not), which are briefly discussed.

Keywords: inequality index, inequality ordering, leaky bucket

JEL Classification: D6

Suggested Citation

Lambert, Peter J. and Lanza, Giuseppe, The Effect on Inequality of Changing One or Two Incomes. University of Oregon Economics Working Paper No. 2003-15, Available at SSRN: https://ssrn.com/abstract=436501 or http://dx.doi.org/10.2139/ssrn.436501

Peter J. Lambert (Contact Author)

University of Oregon - Department of Economics ( email )

Eugene, OR 97403
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Giuseppe Lanza

Universita di Palermo

Palazzo Steri Piazza Marina
61 - 90133 Palermo
Italy

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