Starting from January 1, 2008, Journal of Economic Inequality has become the official journal of ECINEQ.
Original Paper, Pages 281-297
Promoting education under distortionary taxation: equality of opportunity versus welfarism
Pertti Haaparanta, Ravi Kanbur, Tuuli Paukkeri, Jukka Pirttilä, Matti Tuomala
A common claim in the policy discourse is that a government wishing to achieve equality of opportunity should use public provision of education for equalisation of opportunities rather than income taxation, which only equalizes incomes. We develop a framework in which the tax and education provision rules in the welfarist and non-welfarist/equality of opportunity cases can be transparently compared. We show that in addition to education policies, progressive taxation also plays a role in achieving equality of opportunity, and illustrate how its use may differ under the two objectives. We also show how the provision of public education depends on how private education choices respond, potentially differentially by higher- and lower-income families.
Original Paper, Pages 299-325
The measurement of health inequalities: does status matter?
Joan Costa-Font, Frank A. Cowell
Approaches to measuring health inequalities are often problematic because they use methods that are inappropriate for categorical data. In this paper we focus on “pure” or univariate health inequality (rather than income-related or bivariate health inequality) and use a concept of individual status that allows a consistent treatment of such data. We take alternative versions of the status concept and apply methods for treating categorical data to examine self-assessed health inequality for the countries included in the World Health Survey. We also use regression analysis on the apparent determinants of these health inequality estimates. We show that the status concept that is used will affect health-inequality rankings across countries and the way health inequality is related to countries’ median health, income, demographics and governance.
Original Paper, Pages 327-344
Absolute Poverty and Sound Public Finance in the Eurozone
Rosaria Rita Canale, Giorgio Liotti
The respect of fiscal parameters is supposed to be – according to the official position of the European institutions – the best recipe for granting stability and growth. This optimistic view appears to be in contrast with the recent increase in poverty. The aim of this paper is to individuate the existence of a relation between governments’ decisions about fiscal policy and absolute poverty in 19 Eurozone countries from 2005 to 2017. The attempt is to answer the question as to whether the effect on growth generated by fiscal policy measures can account for the objective of poverty alleviation. The results support the conclusion that absolute poverty increases in the presence of a restrictive fiscal policy, while it decreases in the opposite case. During declining macroeconomic conditions, national governments belonging to the Eurozone appear to be unable to reconcile the objective of sound public finance with that of poverty alleviation.
Original Paper, Pages 345-369
Household Earnings and Income Volatility in the UK, 2009–2017
Silvia Avram, Mike Brewer, Paul Fisher, Laura Fumagalli
We study the volatility of sources of individual and household level income in the UK in the years 2009-2017, following the Great Recession and government austerity. We find that the volatility of (pre-tax) earnings and disposable income has fallen for the working-age in this period, largely due to fewer negative and large earnings shocks. For older individuals, we also find a fall in the volatility of private income, mainly due to fewer positive and large income shocks. Taxes and transfers help stabilise incomes, with social security cash benefits and income-dependent refundable tax credits reducing household private income volatility by around a quarter for the working age, and 40 percent for those aged 60 or over. However, over the sample period, taxes and benefits became less well correlated with earnings, reducing their ability to counteract swings in labour income. The findings illustrate the consequences of fiscal retrenchment and the cut-backs to welfare benefits on the stability of incomes.
Original Paper, Pages 371-393
Openness, Income Inequality, and Happiness: Evidence from China
Yong Ma & Diandian Chen
Despite the vast literature on the various determinants of happiness, very little is known about how financial and trade openness may affect people’s happiness in the current literature. In this paper we attempt to fill in this blank using a large survey data from China. We find that while income inequality indeed has a significantly negative effect on happiness, there also exists a notable happiness-enhancing effect of openness via the inequality channel. Further analysis reveals that even after taking into account the possible happiness loss associated with openness, the net effect of openness on happiness remains positive in most cases. The results of the paper extend the previous literature by highlighting the important effects of financial and trade openness in improving people’s happiness and how these effects may interact with income inequality. From a policy perspective, the results of the paper suggest that increasing openness of the economy would be an important strategy that policymakers could use to improve people’s happiness, especially in the context of rising inequality in most developing and developed countries.
Original Paper, Pages 395-420
Fair income tax with endogenous productivities and a fresh start
This paper considers a model in which agents have heterogeneous preferences over labour and consumption. Additionally, they also differ in their earning skills, which are a function of both an innate ability and an early investment decision. In this framework we axiomatically derive a social ordering function that, besides compensating agents for their unequal productivities, grants a fresh start to those who regret their initial choices. Next, by assuming a second-best context we characterise the income tax scheme that satisfies this social ordering. This analysis permits us to present an explicit criterion for the assessment of social welfare under different tax policies. We obtain that the optimal scheme aims to compensate those endowed with the lowest marginal productivity. More importantly, on account of the forgiveness ideal positive social marginal weights are assigned to those who earn the lowest income levels, something that induces a progressivity tendency at the bottom of the earnings distribution.
Original Paper, Pages 421-438
Extending multidimensional poverty identification: from additive weights to minimal bundles
In the popular class of multidimensional poverty measures introduced by Alkire and Foster (2011), a threshold switching function is used to identify who is multidimensionally poor. This paper shows that the weights and cut-off employed in this procedure are generally not unique and that such functions implicitly assume all groups of deprivation indicators of some fixed size are perfect substitutes. To address these limitations, I show how the identification procedure can be extended to incorporate any type of positive switching function, represented by the set of minimal deprivation bundles that define a unit as poor. Furthermore, the Banzhaf power index, uniquely defined from the same set of minimal bundles, constitutes a natural and robust metric of the relative importance of each indicator, from which the adjusted headcount can be estimated. I demonstrate the merit of this approach using data from Mozambique, including a decomposition of the adjusted headcount using a ‘one from each dimension’ non-threshold function.
Original Paper, Pages 439-463
Sources of gender wage gaps for skilled workers in Latin American countries
Marcela Perticará, Mauricio Tejada
This paper identifies the impact of taste-based discrimination on labor market outcomes for nine Latin American countries. We use homogenized survey data on skilled workers to estimate a search and matching model of the labor market with explicit prejudice against women, participation decisions, and occupational choices. By gradually eliminating all potential sources of gender gaps, we find that prejudice is the only source that consistently impacts women, and plays a significant role in explaining gender wage gaps at the bottom of the wage distribution. Additionally, prejudice has strong negative effects on gender gaps with respect to participation, employment/unemployment, and self-employment rates.
Original Paper, Pages 465-481
Meritocracy in Academic Labor Markets: A Comparison of Three Fields
Michael R Ransom, Michael J. Hilmer, Christiana E. Hilmer
We analyze the pay of faculty members of economics, mathematics, and marketing departments at large public universities in the United States. Using the Web of Science, we have identified the journal articles published by these scholars and the number of times each of these articles has been cited by other scholars in published work. We find that the frequency of highly-cited papers, as measured by the Hirsch index, is a strong predictor of pay. Furthermore, we show that this impact varies significantly across these disciplines, with pay in economics being much more strongly linked to a professor’s publication success than is the case for the other fields. This pattern holds within departments and across departments.
Original Paper, Pages 483-502
Transformations that minimize the Gini index of a random variable and applications
Michael McAsey, Libin Mou
Let X be a continuous or discrete random variable with values in [0,M] and consider all functions (here called transformations) q:[0,M]→[0,∞) that are increasing and have given bounded rates B≤(q(v)−q(u))/(v−u)≤A for u<v. We prove that among such transformations, there is a transformation q that minimizes the Gini index of q(X), and such a q can be chosen as piecewise linear with only two rates, namely A and B. In the motivation for the study, X represents the incomes of a population. Our results imply that among all such tax policies with fixed allowable minimum and maximum tax rates, there is a tax policy that minimizes the Gini index of the disposable incomes of the population and such a tax policy has only two brackets with the given minimum and maximum rates.
Correction, Pages 503-507
Correction to: the Fall in Income Inequality during COVID-19 in Four European Countries
Andrew E. Clark, Conchita D’Ambrosio, Anthony Lepinteur