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Income Inequality International Comparisons. Data Sources 4 Luxembourg Income Study -- uses survey income from 25 countries; data organized to maximize.

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Presentation on theme: "Income Inequality International Comparisons. Data Sources 4 Luxembourg Income Study -- uses survey income from 25 countries; data organized to maximize."— Presentation transcript:

1 Income Inequality International Comparisons

2 Data Sources 4 Luxembourg Income Study -- uses survey income from 25 countries; data organized to maximize comparability; measures equivalent disposable income 4 World Development Indicators -- uses individual country data; some data is income data; some data is consumption data; measures per capita income or expenditure.

3 General Problems 4 Debate over use of consumption vs income as measure of economic well being 4 Income data generally excludes capital gains, imputed rents, home production and most of income in-kind. LIS survey does include near cash benefits. Problems arise in making comparisons across countries because one country may give out cash to poor families while another relies more on in-kind transfers.

4 Problems, cont. 4 No account taken of indirect taxes of the benefits of public spending 4 Snapshot at a single point in time so no measure of mobility 4 Homeless population is typically not counted.

5 More Summary Measures 4 Mean Logarithmic Deviation of Income –Average of log ratios of the income of each individual to mean income –Sensitive to changes at lower tail of distribution 4 The Squared Coefficient of Variation –Sum of squared deviations of income of each individual from population mean, divided by mean income –Sensitive to changes at upper tail of distribution

6 The Atkinson Index 4 Normative index, based on concept of equally distributed equivalent income 4 Researchers can adjust weight given in different tails of distribution by setting a level of inequality aversion. The greater the inequality aversion (higher e), the more sensitive is the index to changes at the bottom tail.

7 Formulas

8 Issues 4 Has the U.S. trend towards increasing inequality been replicated in other countries? 4 How do differences in tax and transfer policy affect to income inequality? 4 How does the level of economic development affect income inequality?

9 1980’s Increase in Inequality Is International Phenomena 4 Smeeding’s table three shows increase inequality in market income in nearly all countries. (Italy experienced small decline in Gini.) 4 In some countries,increase in market income inequality offset by taxes and transfers such that disposable income inequality did not increase.

10 LIS Database - Australia, Canada, , no change Finland, , + France, , - Germany, , +++ Hungary, ,+++ Italy, , +++ Norway, Poland, Republic of China, Sweden, , - United Kingdom, United States,

11 Taxes and Transfers Reduced Inequality 4 Disposable income more equally distributed than market income 4 Table 4 from Oxley, et al, “Income Distribution and Poverty in 13 OECD Countries,” OECD Economic Studies, No. 29, 1997,p Other countries tend to engage more actively in redistribution 4 Comparison of pre and post distributions of income in the United States

12 Impact of Taxes/Transfers in United States Source: US Census Bureau, 1998

13 Taxes, Transfers and the Growth in Inequality Source: Gramlich et al, “Growing Inequality in the 1980s: The Role of Federal Taxes and Cash Transfers, in Uneven Tides: Rising Inequality in America, edited by Danziger and Gottschalk, 1993.

14 Changes Over the 1980s 4 Cuts in marginal tax rates for highest brackets relative to other brackets. 4 Increases in Social Security taxes 4 Increase in federal excise tax rates, but real receipts constant 4 AFDC and Unemployment did not keep pace with inflation

15 Kuznets Revisited


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