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

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

Abstract

This paper illustrates how Lorenz 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.

After highlighting some drawbacks of using specific functional forms of the Social Welfare Function (SWF) to infer welfare judgments, the rationale for using Lorenz Curves to rank income distributions is provided in a step-by-step procedure and is illustrated with some simple numerical examples. This module also points out the limitations of Lorenz dominance and highlights how, in some circumstances, it is necessary to use Generalised Lorenz (GL) Curves.

• Item Type: MPRA Paper
• Language: English
• Keywords: lorenz curve; social welfare function; generalised lorenz curves; income distributions; inequality; poverty; lorenz dominance; atkinsons theorem
• 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; D - Microeconomics > D3 - Distribution > D30 - General; 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; 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; D - Microeconomics > D3 - Distribution > D31 - Personal Income, Wealth, and Their Distributions; A - General Economics and Teaching > A1 - General Economics > A13 - Relation of Economics to Social Values; C - Mathematical and Quantitative Methods > C0 - General > C02 - Mathematical Methods; 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; D - Microeconomics > D6 - Welfare Economics > D61 - Allocative Efficiency ; Cost-Benefit Analysis; J - Labor and Demographic Economics > J5 - Labor-Management Relations, Trade Unions, and Collective Bargaining

References

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