The Hybrid Multidimensional Index of Inequality

In this paper, we propose a new multidimensional inequality index that satisfies a fundamental set of desired properties. We discuss the case where the social evaluation function of welfare depends simultaneously on unidimensional and multidimensional forms of inequality. We show how this mixed social norm interferes with the most popular axioms conceived specifically for multidimensional indices of inequality. Illustrations of the proposed developments are made using the Cameroonian household surveys, conducted in 2001. It is shown that multidimensional inequality is more pronounced in the Cameroonian semi-urban and rural areas whereas the monetary inequality is more pronounced in urban area.Multidimensional inequality, social welfare, human development

On the Decomposition of the Gini Coefficient: an Exact Approach, with an Illustration Using Cameroonian Data

Decomposing inequality indices across household groups or income sources is useful in estimating the contribution of each component to total inequality. This can help policy makers draw efficient policies to reduce disparities in the distribution of incomes using targeting tools. Decomposing relative inequality indices, such as the Gini coefficient, is not a simple procedure since, in many cases, the functional form of inequality indices is not additively separable in incomes. More importantly, for some of the indices on which this decomposition can be performed, the interpretation of the decomposition components is often not well founded. In this paper, we use the Shapley value as well as analytical approaches to perform the decomposition of the Gini coefficient and generalize it, in some cases, to the decomposition of other inequality indices. For the analytical approach, our aim is to extend the same interpretation, attributed to the Gini coefficient, to that of the contribution components.Equity, Inequality, Decomposition, Shapley value

On the Decomposition of Polarization Indices: Illustrations with Chinese and Nigerian Household Surveys

This paper explores the link between polarization and inequality and proposes some analytical methods to decompose the Duclos, Esteban, and Ray (2004) polarization index by population groups or income sources. In some cases, the decomposition methods were extend to the Esteban and Ray (1994) one. The main aim of these decomposition methods is to extend the interpretation derived from polarization indices to that of contribution components. Results drawn from Chinese data conclude that even if inequality has increased sharply during the last two decades, the pure polarization component was remained constant or even decreased on average. On the other hand, results from the 2004 Nigerian survey conclude that the population is spatially polarized, and this, based on geo-ecological zones. Furthermore, the two income sources, namely, Employment income and Non farm business income, significantly contribute to total polarization.Polarization, Equity, Inequality, Decomposition

Poverty, Inequality and Stochastic Dominance, Theory and Practice: The Case of Burkina Faso

In this paper we provide a set of rules that can be used to check poverty or inequality dominance using discrete data. Existing theoretical rules assume continuity in incomes or in percentiles of the population. In reality, with the usual household surveys, this continuity does not exist. However, such a discontinuity can be exploited to test for stochastic dominance. This paper also proposes stochastic dominance conditions that check for the statistical robustness of the inferred rankings. The methodology of this paper is illustrated using Burkina Faso's household surveys for the years of 1994 and 1998.Stochastic Dominance, Poverty, Inequality

Social Classes, Inequality and Redistributive Policies in Canada

The social performance of fiscal redistributive mechanisms in Canada continues to receive a growing interest from politicians and research scientists. The aim of this paper is to assess the evolution of social classes in Canada and to check whether the market and governmental redistribution factors have affected their evolution during the last decade. We focus on the dynamic of inequality, polarization and progressivity of the fiscal system. The results of this study confirm the effectiveness of governmental redistributive mechanism to decrease inequality and polarization significantly and to maintain the middle social class at the detriment of the poorest one. The other evidence concerns the chronic increase in population share and wellbeing of the rich class. Finally, the progressivity of fiscal sytem has registered a significant increase during the last few years.Social classes, poverty, inequality, redistribution

Poverty, Inequality and Stochastic Dominance, Theory and Practice: Illustration with Burkina Faso Surveys

In this paper we provide a set of rules that can be used to check poverty or inequality dominance using discrete data. Existing theoretical rules assumes continuity in incomes or in percentiles of population. In reality, with the form of household surveys, this continuity does not exist. However, the said discontinuity can be exploited in testing the stochastic dominance. Moreover, in this paper, we proprose the stochastic dominance conditions that take into account the statistical robustness in testing the stochastic dominance. Findings of this paper are illustrated using the Burkina Faso's household surveys for the years of 1994 and 1998.Stochastic Dominance, Poverty, Inequality

Poverty and Inequality Components: a Micro Framework

This paper explores the link between poverty and inequality through an analysis of the poverty impact of changes in income-component inequality and in between -an within- group inequality. This can help shed light on the theoretical and empirical linkages between poverty, growth and inequality. It might also help design policies to improve both equity and welfare. The tools are illustrated using the recent 2004 Nigerian national household survey. The analytical derived linkages are supported by the empirical illustration, and interesting insights also emerge from the empirical analysis. One such insight is that both the sign and the size of the elasticities can be quite sensitive to the choice of measurement assumptions (such as the choice of inequality and poverty aversion parameters, and that of the poverty line). The elasticities are also very much distributive-sensitive and dependent on the type of inequality-changing processes taking place. This also suggests that the response of poverty to growth can also be expected to be significantly context specific.Poverty, inequality, poverty elasticities, redistribution

Mobility, Taxation and Welfare

Income mobility is often thought to equalize permanent incomes and thereby to improve social welfare. The welfare analysis of mobility often fails, however, to account for the cost of the variability of periodic incomes around permanent incomes. This paper assesses the net welfare benefit of mobility by assuming both a social aversion to inequality in permanent incomes and an individual aversion to variability in periodic incomes. The paper further investigates the combined (and comparative) impact of mobility and of the tax system (another presumed income equalizer) on the dynamics of income across time and on the inequality of income across individuals. Using panel data, we find that Canada's tax system limits significantly the redistributive impact of mobility while also lowering considerably the cost of income variability. The permanent income equalizing effect of taxes can reach up to 23 percent of mean income at the higher values of inequality aversion that we use. Globally, the net social welfare effect of both mobility and taxation is (almost always) positive and substantial, often amounting to around 30 percent of mean income. For all choices of parameter values, the tax effect exceeds by far the net effect of mobility on inequality and social welfare.mobility, social welfare, risk, income variability, inequality, permanent income

Classical Horizontal Inequity and Reranking: an Integrated Approach

The last 20 years have seen a significant evolution in the literature on horizontal inequity (HI) and have led to two major and "rival" methodological strands, namely, classical HI and reranking. We propose in this paper a class of ethically flexible tools that integrate these two strands. This is achieved using a measure of inequality that merges the well-known Gini coefficient and Atkinson index, and that allows a decomposition of the total redistributive effect of taxes and transfers into a vertical equity effect, a loss of redistribution due to classical HI, and a loss of redistribution due to reranking. An inequality-change approach and a money-metric cost-of-inequality approach are developed. The latter approach makes aggregate classical HI decomposable across socio-economic groups and percentiles. As in recent work, equals are identified through a nonparametric estimation of the joint density of gross and net incomes. An illustration using Canadian data from 1981 to 1994 shows a substantial, and increasing, robust erosion of redistribution attributable both to classical HI and to reranking, but does not reveal whether reranking is more or less important than classical HI, since this requires a judgement that is fundamentally normative.Horizontal inequity, Reranking, Tax equity, Inequality, Canadian tax and transfer system

Poverty and Inequality Nexus: Illustrations with Nigerian Data

The main aim of this paper is to explore the link between poverty and inequality. In developing countries, there is a general consensus that high inequality can dampen significantly the impact of economic performance on poverty. In this paper, we propose a new theoretical framework that links poverty and inequality. We also show between and within group inequalities, as well as inequality in income sources, can contribute to total poverty. The methodology of the paper is illustrated using the 2004 Nigerian national living standard survey.Poverty, Inequality