Social Welfare Analysis of Income Distributions: Ranking Income Distributions with Crossing Generalised Lorenz Curves

Bellù, Lorenzo Giovanni and Liberati, Paolo (2005): Social Welfare Analysis of Income Distributions: Ranking Income Distributions with Crossing Generalised Lorenz Curves. Published in: (1 November 2005)

Abstract

This paper illustrates how Crossing Generalised Lorenz (GL) curves can be used to identify the best income distribution on social welfare grounds within a set of alternative income distributions generated by different policy options.

It starts by illustrating two alternative income distributions resulting from policy changes that lead to income increases for some individuals and decreases for others. GL curves are then calculated for the alternative distributions to rank them on welfare grounds on the basis of Shorrocks’ Theorem. After observing that Shorrocks’ Theorem is not applicable, because GL curves cross once, necessary additional conditions, such as restrictions on the features of the Social Welfare Function (SWF) and the shape of income distributions, are set and discussed. Subsequently, a step-by-step procedure to use GL curves to infer welfare judgments when GL cross once, is provided and illustrated with some simple numerical examples.

• Item Type: MPRA Paper
• Language: English
• Keywords: crossing generalised lorenz (GL) curves; social welfare; income distribution; poverty; Shorrocks’ Theorem; social welfare funtion; Rawlsian; diminishing transfers; utilitarian preferences
• Subjects: I - Health, Education, and Welfare > I3 - Welfare, Well-Being, and Poverty > I30 - General; D - Microeconomics > D6 - Welfare Economics > D63 - Equity, Justice, Inequality, and Other Normative Criteria and Measurement; I - Health, Education, and Welfare > I3 - Welfare, Well-Being, and Poverty > I31 - General Welfare, Well-Being; H - Public Economics > H5 - National Government Expenditures and Related Policies > H53 - Government Expenditures and Welfare Programs; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H23 - Externalities ; Redistributive Effects ; Environmental Taxes and Subsidies; D - Microeconomics > D3 - Distribution > D31 - Personal Income, Wealth, and Their Distributions; C - Mathematical and Quantitative Methods > C0 - General > C02 - Mathematical Methods; D - Microeconomics > D6 - Welfare Economics > D61 - Allocative Efficiency ; Cost-Benefit Analysis; D - Microeconomics > D3 - Distribution > D30 - General; I - Health, Education, and Welfare > I3 - Welfare, Well-Being, and Poverty > I32 - Measurement and Analysis of Poverty; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E64 - Incomes Policy ; Price Policy; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H22 - Incidence; A - General Economics and Teaching > A1 - General Economics > A13 - Relation of Economics to Social Values; J - Labor and Demographic Economics > J4 - Particular Labor Markets; I - Health, Education, and Welfare > I3 - Welfare, Well-Being, and Poverty > I38 - Government Policy ; Provision and Effects of Welfare Programs; J - Labor and Demographic Economics > J5 - Labor-Management Relations, Trade Unions, and Collective Bargaining

References

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