John P. Formby

Lorenz Dominance and Welfare: Changes in the U.S. Distribution of Income, 1967-1986

This paper examines income inequality in the Untied States over the period 1967-86 using recently developed tests for differences in Lorenz curves. The authors are able to rank eighteen of nineteen annual comparisons. In contrast, standard techniques are able to rank only twelve. These results suggest that the Lorenz dominance principle is more empirically relevant than previously thought. The tests reveal a sharp rise in U.S. inequality between 1978 and 1982, as well as a shift toward greater inequality over the entire period. The authors also examine changes in economic welfare using the joint mean-Lorenz dominance principle. Copyright 1991 by MIT Press.

Mobility measurement,transition matrices and statistical inference

This paper develops statistical inference procedures for testing income mobility with transition matrices. Both summary mobility measures and partial mobility orderings are considered. We first examine the different ways that transition matrices are constructed in the literature on mobility measurement. Different approaches lead not only to distinct interpretations of mobility but also to different sampling distributions. The large sample properties of the estimates of transition matrices allow us to derive testing procedures for both summary mobility measures and partial orders of mobility across income regimes. The tests are illustrated by applying them to income mobility in the U.S. and Germany using the Panel Study of Income Dynamics and German Socio-Economic Panel data.

Envy, malice and Pareto efficiency: An experimental examination

Abstract Economists have long speculated that envy and malice play important roles in economic decisions. Surprisingly little empirical evidence has been offered in support of such claims. This paper uses experimental and multinomial logit techniques to estimate the effects of envy and malice in economic decisions involving Pareto efficiency. Envy and malice turn out to be powerful motivations with strong differential impacts across countries and relative positions. In some cases, opposition to Pareto gains reaches 60%. Behind a veil of ignorance, however, opposition falls to 10% overall. Pareto efficiency thus garners its greatest support under conditions which can lay claim to greatest legitimacy, those free of situational and personal bias.“... the greater part of human actions have their origin not in logical reasoning but in sentiment. This is particularly true for actions that are not motivated economically.... Man, although impelled to act by nonlogical motives, likes to tie his actions logically to certain principles; he therefore invents these a posteriori in order to justify his actions.”V. Pareto in The rise and fall of the elites (1968, p. 27)

Statistical Inference and the Sen Index of Poverty

Statistical inference procedures are developed for A. K. Sens distribution-sensitive index of poverty and each of its components--the headcount ratio, income gap ratio, and the Gini index of the poor. Using results from U-statistics, the authors show that estimates of the index and its components all have a jointly asymptotically normal distribution and the variance-covariance structure can be consistently estimated. The inference tests are illustrated by applying them to the same microeconomic data set used in estimating official U.S. poverty statistics. The application reveals that the Sen index increased significantly in each of the three periods considered. Copyright 1997 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Testing for Marginal Changes in Income Distributions with Lorenz and Concentration Curves

Asymptotically distribution free statistical tests for comparing absolute and relative Lorenz and concentration curves are provided. The procedures do not require independent samples and can be used to test for marginal changes in income distributions. The tests are illustrated using a large sample of tax returns that have been randomly selected for audit by the Internal Revenue Service. The tests reveal the marginal effects of systematic underreporting of income and tax liabilities on the U.S. income distribution. Copyright 1994 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

International Comparisons of Income Inequality: Tests for Lorenz Dominance across Nine Countries

This paper examines income inequality across nine countries using the Luxembourg Income Study data set. New statistical tests and comparability of data provide an exceptionally clear picture of relative income inequality. Only 4 comparisons out of a possible 108 cannot be ranked. In most cases, differences in the definition of the recipient unit make little difference in the rankings. Irrespective of recipient units, Sweden, Norway, and Germany come out at the top of the ordinal Lorenz ranking, with Australia, Canada, and the United Kingdom in the middle, and the United States and Switzerland at the bottom. Copyright 1991 by The London School of Economics and Political Science.

A Comparison of Two New Measures of Tax Progressivity [Measurement of Tax Progressivity: An International Comparison]. [Measurement of Tax Progressivity]

Recently N. C. Kakwani (I977) and Daniel Suits (I977) independently and simultaneously developed new measures of the degree of tax progression. Both measures are related to the Gini ratio of income inequality and are distinct from conventional elasticity measures of progressivity in that each yields a summary statistic, while standard elasticity measures of progressivity vary as the tax base changes. In this paper we briefly describe the measures, identify their important characteristics, and establish the analytical relation between them. Empirical calculations of the progressivity of the U.S. income tax system for the period I 962-76 reveal that the two measures display different magnitudes of change in progressivity. More importantly, in three out of fourteen years the measures moved in opposite directions.

Use of region, life-cycle and role variables in the short-run estimation of the demand for gasoline and miles travelled

Short-run demand for miles travelled and gasoline consumed are estimated for population subgroups defined by region, occupation and life-cycle. Understanding and quantifying the different responses of subgroups to changes in income and gasoline price are important from the perspective of transport and energy policies. Micro data are used to investigate the effects of marginal changes in price and income among sociodemographic groups. This paper demonstrates that there are significant differences in the estimated parameters between the general population and subgroups within the population. Further, significant differences may be demonstrated between those subgroups.

Explaining Interstate Variation in Income Inequality

This paper investigates interstate variation in income inequality. By avoiding inequality indices and focusing directly on the Lorenz curve, the authors provide a more general explanation of the differences in inequality. They find that mean family income, the standard deviation of years of schooling, per capita educational expenditure, and property income are robust predictors of inequality. Of particular interest is their finding that, ceteris paribus, higher per capita education expenditures tend to be associated with states that have income inequality which is greater than the U.S. average. Copyright 1992 by MIT Press.

Inference Tests for Gini-Based Tax Progressivity Indexes

Distribution-free statistical inference procedures for changes in Lorenz- and Gini-based indexes of tax progressivity are developed and applied. Related but distinct tests for the Reynolds–Smolensky index of residual progression and the Kakwani index of liability progression are provided. The inference procedures are illustrated by applying them to Luxembourg Income Study microdata for Sweden, the United Kingdom, and the United States before and after periods of tax reform. In each country a finding of significant change depends on the choice among progressivity indexes. No single index exhibits a consistent pattern of significant change in all countries across time.