Xavier Ramos

Inequality and Happiness

In recent years there has been an accumulation of empirical evidence suggesting that individuals dislike inequality. The literature has built upon estimating the degree of this dislike as well as its causes. The use of self-reported measures of satisfaction or well-being as a proxy for utility has been one of the empirical strategies used to this end. In this survey, we review the papers that estimate or examine the relationship between inequality and self-reported happiness to conclude that inequality correlates negatively with happiness in Western societies. Some of the surveyed papers identify particular sources of heterogeneity on preferences over inequality. The evidence for non-Western societies is more mixed and less reliable. Notwithstanding that, trust in the institutions seems to play an important role in shaping the relationship between income inequality and subjective well-being. We conclude with suggestions for further research.

The Covariance Structure of Earnings in Great Britain, 1991-1999

I analyse the dynamic structure of earnings in Great Britain for the period 1991-99 by decomposing the earnings covariance structure into its permanent and transitory components. According to the British Household Panel Study data, earnings inequality of male full-time employees increases over the 1990s. However, earnings mobility may have also increased. That is, for this period earnings persistence falls. This evidence is at odds with previous literature on earnings dynamics both for Britain and other OECD countries. Moreover, human capital and job related characteristics account for nearly all persistent earnings differences and the transitory component is highly persistent. Copyright The London School of Economics and Political Science 2003.

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.

Poverty and Inequality of Standard of Living and Quality of Life in Great Britain

Most empirical analyses on inequality and poverty use either income or consumption to approximate the standard of living and/or quality of life of individuals (or households). Notwithstanding this, it is well known that these measures are seriously deficient. Moreover, it is a handicap to be concerned with goods, as such, to the exclusion of what goods “do to human beings” (Sen, 1998, 1999). We take on Sen’s concepts of ‘resources’ and “functionings” and measure poverty and inequality of standard of living and quality of life in Great Britain using the British Household Panel Study (BHPS) data. Sen defines “resources” as the material goods and services, which confer capability on individuals. That is, provide them with the capacity to do things. His concept of “functionings,” however, captures the notion of how well individuals are functioning as human beings. Following Lovell et al. (1994) we use distance functions to estimate standard of living, quality of life and the efficiency in transforming resources into functionings. Standard of living is measured as a mixture of resources by means of an index, which is analogous to the input quantity index of production economics, whereas quality of life gets measured by an index of individual functionings, which is analogous to the output quantity index of production economics. We then analyse the distributions of standard of living and quality of life and their relationship with the efficiency in transforming resources into functionings. We find little correlation between the first two distributions and very low inequality and poverty.

Welfare Comparisons: Sequential Procedures for Heterogeneous Populations

Some analysts use sequential dominance criteria, and others use equivalence scales in combination with non-sequential dominance tests, to make welfare comparisons of joint distributions of income and needs. In this paper we present a new sequential procedure which copes with situations in which sequential dominance fails. We also demonstrate that the recommendations deriving from the sequential approach are valid for distributions of equivalent income whatever equivalence scale the analyst might adopt. Thus the paper marries together the sequential and equivalizing approaches, seen as alternatives in much previous literature. All results are specified in forms which allow for demographic differences in the populations being compared.

Approaches to Inequality of Opportunity: Principles, Measures, and Evidence

We put together the different conceptual issues involved in measuring inequality of opportunity, discuss how these concepts have been translated into computable measures, and point out the problems and choices researchers face when implementing these measures. Our analysis identifies and suggests several new possibilities to measure inequality of opportunity. The relevance of the conceptual issues and modelling choices are illustrated with findings from the empirical literature on income inequality of opportunity.

Using Efficiency Analysis to Measure Individual Well-Being with an Illustration for Catalonia

This paper shows how distance functions, a tool typically employed in production economics to measure the distance between a set of inputs and a set of outputs, can be employed to approximate a composite measure encompassing the many dimensions of well-being. It also illustrates how to implement the methodology originally put forth by Lovell et al. (1994), using new data for Catalonia. We draw policy implications and critically appraise the discussed methodology suggesting avenues for further research.

Polarization and Health

This paper examines the effect of income polarization on individual health. We argue that polarization captures much better the social tension and conflict that underlie some of the pathways linking income disparities and individual health, and which have been traditionally proxied by inequality. We test our premises with panel data for Spain. Results show that polarization has a detrimental effect on health. We also find that the way the relevant population subgroups are defined is important: polarization is only significant if measured between education-age groups for each region. Regional polarization is not significant. Our results are obtained conditional on a comprehensive set of controls, including absolute and relative income.

Horizontal Equity And Differences In Income Tax Treatment: A Reconciliation

Some personal income tax breaks reward socially approved activities, others serve the interests of tax administrators and special interest groups. All give rise to classical HI. We allow for the categorization of tax breaks into deserving and undeserving types, and pose a “modified HE” requirement which legitimizes the former. Deserving breaks result in a loss of VE, non-deserving ones in (modified) HI. The equity cost of each tax break can be assessed. For the U.S. personal income tax, modified HI is potentially a lot smaller than classical HI: e.g. the charitable giving tax break alone in 1990 accounted for 44% of classical HI.

Long‐Term Earnings Inequality, Earnings Instability and Temporary Employment in Spain: 1993–2000

This article provides a longitudinal perspective on changes in Spanish male earnings inequality for the period 1993–2000 by decomposing the earnings covariance structure into its permanent and transitory parts. Cross�?sectional earnings inequality of male full�?time employees falls over the second half of the 1990s. Such decline was determined by a decrease in earnings instability and an increase of the permanent earnings component. Given the marked decline in temporary employment over the sample period, we also examine the effect of the type of contract on earnings variance components and find that workers on a fixed�?term contract face, on average, more instability than workers on a permanent contract. This evidence suggests that the decline in temporary employment is responsible for the decreasing earnings instability.