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Title:On the measurement of long-term income inequality and income mobility PDF Logo
Authors:Aaberge, Rolf
Mogstad, Magne
Issue Date:2010
Series/Report no.:IZA Discussion Papers 4699
Abstract:This paper proposes a two-step aggregation method for measuring long-term income inequality and income mobility, where mobility is defined as an equalizer of long-term income. The first step consists of aggregating the income stream of each individual into a measure of permanent income, which accounts for the costs associated with income fluctuations and allows for credit market imperfections. The second step aggregates permanent incomes across individuals into measures of social welfare, inequality and mobility. To this end, we employ an axiomatic approach to justify the introduction of a generalized family of rank-dependent measures of inequality, where the distributional weights, as opposed to the Mehran-Yaari family, depend on income shares as well as on population shares. Moreover, a subfamily is shown to be associated with social welfare functions that have intuitively appealing interpretations. Further, the generalized family of inequality measures provides new interpretations of the Gini-coefficient.
Subjects:Income inequality
income mobility
social welfare
Gini coefficient
permanent income
credit market
annuity
JEL:D71
D91
I32
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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