Peter J. Lambert

Inequality decomposition analysis and the Gini coefficient revisited

The Gini coefficient has long been thought unsuitable for inequality decomposition analysis because of a troublesome and little-understood residual term that occurs when subgroup income ranges overlap after the between-groups and within-groups contributions to inequality have been separated out. In this paper, graphical analysis is used to provide a solid understanding of the residual term as a subarea of the Lorenz diagram. Implications for inequality decomposition analysis are considered. Copyright 1993 by Royal Economic Society.

Welfare rankings of income distributions: A rôle for the variance and some insights for tax reform

When generalized Lorenz curves cross, it is not possible to rank the underlying income distributions by the unanimous preference of all additively separable symmetric inequality-averse social welfare functions. But in many cases, unanimous preference results in terms of inequality-aversion are nevertheless available. When generalized Lorenz curves cross once, variance is decisive in determining a robust welfare ranking, and can provide a rationale for choosing equity over efficiency where these two desiderata conflict. Welfare recommendations for certain types of income tax reform are implied, including cases of yield-increasing redistribution.

Horizontal Inequity and Vertical Redistribution

Inequality of post-tax income among pre-tax equals is evaluated andaggregated to form a global index of horizontal inequity in the income tax.The vertical action of the tax is captured by its inequality effect on averagebetween groups of pre-tax equals. Putting the two together, horizontalinequity measures loss of vertical performance. The identification problem,which has previously been thought insuperable, is addressed by a procedurevalidating the banding of income units into ‘close equals’ groups. Thehorizontal and vertical effects of a major Spanish income tax reform areevaluated. Lines for future investigation are suggested.

Inequality aversion and the natural rate of subjective inequality

Abstract This paper analyzes inequality aversion across countries and identifies factors which explain the empirical heterogeneity observed across these countries. We do this by hypothesizing a ‘natural rate’ of subjective inequality across countries and solving for the explicit country-specific value of the inequality aversion parameter that is consistent with the hypothesized natural rate. We present evidence consistent with the existence of a natural rate of subjective inequality by verifying that countries with low (high) tolerance for inequality have low (high) inequality as measured by the Gini coefficient as well. Finally, we explore the socio-economic factors that are consistent with observed differences in inequality aversion across these countries, finding important effects of female empowerment, public education expenditures, per capita income, economic growth, and population size.

Close Equals and Calculation of the Vertical, Horizontal and Reranking Effects of Taxation

This paper examines the Gini-based method of decomposing the redistributive effect of taxation into vertical, horizontal, and reranking components. The consequences of different bandwidth choices, used to identify close-equals groups to estimate the horizontal effect, are discussed. Two opposing forces are identified which militate against choosing a very small or large bandwidth. It is suggested that the best procedure is to use the bandwidth that maximises the estimated vertical component, compute the reranking component exactly as a sample statistic and obtain the horizontal effect by subtraction. The technique is used to analyse the progressivity of tax and transfer payments in Australia. Copyright 2001 by Blackwell Publishing Ltd

Surveys in the economics of uncertainty

New Developments in the Theory of Choice Under Uncertainty, Robert Sugden Individual Choice Under Uncertainty - A Review of Experimental Evidence, Past and Present, Lynda Appleby and Chris Starmer The Theory of Principal and Agent The Theory of Principal and Agent Theories of Individual Search Behaviour, C. J. McKenna Models of Search Market Equilibrium, C.J.McKenna The Simple Analytics of Implicit Labour Contracts, Mark P. Taylor Further Developments in the Theory of Implicit Labour Contracts, Mark P. Taylor The Economic Analysis of tax Evasion Frank A. Cowell The Economic Analysis of Tax Evasion - Empirical Aspects, M.Marrelli.

On measuring inequity in taxation: a new approach

Abstract In this paper, three axioms are given for the equitable income tax, and a measurement system is proposed according to which axiom violations exert distinct negative influences on the redistributive effect of the tax. The three negative influences associated with axiom violations provide means to characterize the type of inequity in an income tax system and assess its extent. An application to the Australian income tax in 1984 reveals that inequity severely affects the people in the bottom decile, and can be traced to regressivity in the income tax system caused by family tax treatment that is not equivalent-income-based.

Equity, equality and welfare

This paper argues that horizontal equity (HE) and vertical equity (VE) are two of the basic commands of social justice, and can be seen as hierarchical: the information content of the VE command is sufficient also to implement HE. A general, vector specification of inequity is proposed for a tariff (treatment system) which does not satisfy HE and VE. In the case of the income tax, the distinction between the HE and VE commands, and the NR (no reranking) criterion which has coexisted in the income tax literature with these for the last 15 years, is drawn. A complication not recognised by HE and VE is the effect of pursuing the common interest (efficiency) goal of the tariff. The paper concludes with a call for further work on the meaning and implementation of concepts of justice in direct taxation, and on the common interest dimension.

Social welfare and the gini coefficient revisited

Abstract The question of conflict between the rankings of income distributions with the same mean by the Gini coefficient and by individualistic social welfare functions is re-examined. The negative result of Newbery (1970) is extended. However, positive results are obtainable which reverse Newberys conclusion by admitting into the individuals utility index a measure of his position in the income distribution, or of his deprivation with respect to others incomes.

Inequality Reduction through the Income Tax

Income taxation typically has an inequality-reducing impact. This would be explained by theory were it the case that all income units were taxed according to a common progressive schedule. But this is not so; we lack a theoretical explanation for the observed finding. This paper explains how income taxes that take nonincome attributes (such as marital status) into account can act to reduce overall income inequality. Copyright 1993 by The London School of Economics and Political Science.