A general class of inequality elasticities of poverty

Many authors have recently emphasized the crucial role of income inequalities in the design of efficient policies aimed at reducing poverty. However, the link between variations in the degree of inequality and variations in poverty is not well documented. The literature, for instance, does not provide any satisfying tool for predicting how a small relative variation in the Gini index may be associated with a variation in the headcount index. In the present paper, we define a family of Lorenz curve transformations that can directly be interpreted in terms of relative variations of known inequality measures. Then, we extend Kakwani’s (Rev Income Wealth 39(2):121–139, 1993) methodology for the calculation of inequality elasticities of poverty. Improvements are threefold with respect to Kakwani’s work. First, our formulas are not confined to the sole Gini index. Secondly, they embrace the uncertainty and the complexity of the mechanical link between inequality and poverty. Third, using some flexible functional form, one can easily perform an accurate estimation of the point inequality elasticities of poverty corresponding to observed variations of a given income distribution. We also propose a simple measure that may be helpful to assess how “pro-poor” are inequality variations by comparing the observed elasticities with the set of theoretical elasticities that could be obtained from the initial income distribution.     

Income inequality, race, and child well-being: an aggregate analysis in the 50 United States

Interest in income inequality as a predictor of health has exploded since the mid-1990s. Recent analyses suggest, however, that the effect of income inequality on population health is not robust to a control for the racial composition of the population. That observation raises two interpretational questions. First, does income inequality have an independent effect on population health? Second, what does the effect of racial composition on population health mean? We use data from the Urban Institute's Assessing the New Federalism project and the Kids Count Databook to evaluate the aggregate effects of income inequality on diverse measures of child well-being (e.g., infant mortality, high school drop-out rates) in the 50 U.S. states. We replicate the finding that, net of the racial/ethnic composition of the population, the effects of income inequality are not significant. Moreover, the effects of racial composition on child well-being appear to be compositional (i.e., they reflect the less positive outcomes observed among racial/ethnic minorities) rather than contextual (i.e., representing the independent influence of social context). Whereas cross-level effects are still possible, our results cast doubt on the health relevance of these aggregate characteristics of the population.     

THE DECOMPOSITION OF INEQUALITY BY CLASS AND BY OCCUPATION:

Sociological research on earnings and income has focused on predicting individual income. Analyses most often use occupational status or class, along with other economically relevant variables, to explain earnings or income variations among individuals (income determination). Aggregate inequality (income distribution) has received considerably less attention, except in cross-national research. This especially holds for applying central concepts of stratification to the analysis of inequality. That is, class and occupation differences in economic rewards are rarely used to investigate aggregate earnings or income inequality. This study, using 1976 and 1977 Panel Study of Income Dynamics survey data, estimates the proportion of total earnings/income inequality accounted for by class and by occupation. Theil's index is used to measure earnings and income inequality and thus decompose total inequality into between-and within-group components. Wright's five-category schema is replicated for decomposition of inequality by class and a traditional four-category ordinal typology for decomposition by occupation. The two schemas show similar results: both class and occupation respectively account for between one-fifth and one-fourth of total earnings and income inequality. The results show the relevance of these central stratification typologies for the analysis of aggregate inequality.     

Inequality and education decisions in developing countries

In this paper we analyze the effect of inequality on school enrollment, preferred tax rate and expenditure per student in developing countries; when parents can choose between child labor, public schooling or private schooling. We present a model in which parents make schooling decisions for their children, weighing the utility benefit of having a child with formal public or private education versus the forgone income from child labor or household work. Parents vote over the preferred tax rate to finance freely provided public education. The utility benefit of an educated child is proportional to expenditure per student, so that there is congestion in public school. We find that when parents can send their children to work or to private school, high inequality leads to exit from public education at both ends of the income distribution. Thus high inequality reduces the support for public education, leading to a low tax rate and expenditure per student. Exit from public education results in both high child labor and a large fraction of students attending private school. In fact there is a threshold level of inequality above which there is no longer support for public education. In addition we explore the implications for the design of foreign aid. The results suggest that foreign aid policies should focus on promoting school attendance rather than increasing school resources, as the later policy might be offset by a reduction in the recipient country’s fiscal effort, with little impact on outcomes.      

Information theoretic approaches to income density estimation with an application to the U.S. income data

The size distribution of income is the basis of income inequality measures which in turn are needed for evaluation of social welfare. Therefore, proper specification of the income density function is of special importance. In this paper, using information theoretic approach, first, we provide a maximum entropy (ME) characterization of some well-known income distributions. Then, we suggest a class of flexible parametric densities which satisfy certain economic constraints and stylized facts of personal income data such as the weak Pareto law and a decline of the income-share elasticities. Our empirical results using the U.S. family income data show that the ME principle provides economically meaningful and a very parsimonious and, at the same time, flexible specification of the income density function.     

Race and relative income/price of time effects on U.S. fertility

In an earlier paper, a model developed by the author found strong evidence of both “relative income” and “price of time” effects in aggregate U.S. fertility data for 20–24 year olds. This paper examines data from the same source (aggregations of Current Population Survey microdata, prepared by the author), separately for African-Americans and whites, and establishes that—while the same model specification holds for both racial groups—there are considerable differences between the races in terms of elasticities. Relative income (young males' average earnings relative to couples' material aspirations) and the female wage are found to exert strong effects on the fertility of both racial groups, but the elasticities with respect to male earnings and the female wage for African-Americans are roughly half the size of those for whites. In addition, there is strong evidence of an underlying positive time trend in African-American fertility.     

Life satisfaction in China and consumption and income inequalities

This research uses nationally representative data to study how economic resources and inequalities are associated with life satisfaction of Chinese residents. We construct economic resource and inequality measures from expenditure rather than from income, after confirming that expenditure inequality is a better measure in the Chinese context. We find that economic inequalities in general are negatively associated with life satisfaction, and that this association is larger for inequalities in the lower half of the distribution than those in the upper half of the distribution. We further explore the mechanisms under which inequality can be associated with life satisfaction, and find that aspiration is potentially one important channel.     

The Social Inclusion and Inequality Nexus: EU versus non‐EU migrants

This study examines the relationship between social inclusions of migrant and income inequality. Both positive and negative impacts of social inclusion on income inequality have been observed in the previous literature. This study specifically considers two types of migration flow: migration flow from EU and migration flow from non‐EU. The aim of this article is twofold: 1) is there a strong association between social inclusion of migrants and income inequality, 2) is there any different impact of social inclusion of two types of migrants (EU vs non‐EU)? Using data from 33 mainly European countries over the period 2003‐2015 and controlling for savings rate, arable land rate and age‐dependency ratio, our results indicate that there is a significant negative relationship between social inclusion and income inequality. In particular, we find that social inclusion from non‐EU migrants significantly reduces income inequality compare with EU migrants.     

Middle Class Identity in the Modern World: How Politics and Economics Matter

It is widely accepted that people tend to identify with the middle classes regardless of their social class position. Nevertheless, this “middle class identity bias” is not equally prominent in all western democracies. The goal of this article is to assess the role of political and economic conditions in shaping this phenomenon. By exploring the relationship between class identity and national context in 15 modern societies, I address two main questions: (1) how individual‐level income affects where people place themselves in the class system, and (2) how national political and economic context affects this relationship. In doing so, I offer several important findings. First, although there is a positive relationship between income and class identification in all 15 societies, middle class identification is weakest when income inequality is high. Consistent with previous findings, the results suggest that economic development has a positive impact on class identity. The results also uncover a role for political ideology by suggesting a lingering affect of Communist rule. Even after controlling for economic development and income inequality, respondents in former Communist countries are more likely than others to identify as belonging to a low social class.     

Ökonomische und nicht-ökonomische Gefahren für Demokratien

Muller (1995a) claimed that during the 1960s and 1970s countries with (high) income inequality are more likely to face decline in democracy than countries with lower income inequality. This article uses new data to compare the negative impact of two economic determinants (income inequality, inflation) and two non-economic determinants (percent of Islamic population, world system periphery) on democracy. It is found that neither income inequality nor world system periphery does contribute to the explanation of the decline in democracy. Only inflation offers a tentative explanation for decline in democracy. The validity of the results is lessened by sample problems. Especially the data from communist countries appear to be less reliable.     

National Income, Inequality and Global Patterns of Cigarette Use

Declining tobacco use in high-income nations and rising tobacco use in low- and middle-income nations raises questions about the sources of worldwide patterns of smoking. Theories posit a curvilinear influence of national income based on the balance of affordability and health-cost effects. In addition, however, economic inequality, gender inequality and government policies may moderate the rise and fall in smoking prevalence with national income. This study tests these arguments using aggregate data for 145 nations and measures of smoking prevalence circa 2000. The results show nonlinear effects of national income for males that take the form of an inverted U, but show linear effects for females. They also show non-additive effects of economic inequality for males that moderate both the rise and decline of smoking with national income and non-additive effects of gender equality for females that moderate the positive effect of national income.     

Empirics of the median voter: democracy, redistribution and the role of the middle class

This paper improves the empirical investigation on the effectiveness of the median voter theorem. Using high quality data, it is possible to directly observe individual net cash transfers in several countries and to investigate the effects of taxes and transfers on different social classes and in aggregate. This allows testing of both the “redistribution hypothesis” (more inequality leads to more redistribution in aggregate) and the “median voter hypothesis” (the middle class plays a special role in policy making). Results suggest acceptance of the former and reject on, or at least questioning, of the latter. Not only the gains from redistribution are negligible for the middle class, but also the link between income and redistribution is also lower for it than for any other class of income. Moreover, the strength of the median voter seems to fall over time. Finally, the amount of redistribution targeted to the middle class is lower in more asymmetric societies, a result that contrasts strongly with the median voter theorem.     

"A 20% income increase for everyone?": The effect of relative increases in income on perceived income inequality

Most research on income inequality implicitly assumes that a fixed percentage increase in income across all income levels does not alter income inequality. In contrast with this assumption, we show that relative increases in income lead to increased perceptions of inequality, even when buying power is held constant. In a second experiment, we extended these findings using a fictitious currency, thereby eliminating effects of using a familiar currency. In study 3, we demonstrate that feelings of envy and fairness are affected by a fixed percentage income increase.     

THE AGGREGATE PERMANENT INCOME CONSUMPTION FUNCTION

This paper presents new evidence on the aggregate (timeseries) variant of the permanent income hypothesis. Using flexible-lag procedures, estimates are derived that suggest that permanent income depends largely upon recent income receipts, thus calling into question a central assumption of the original Friedman theory. The results of the study also raise doubts about the empirical validity of other elements of the aggregate variant of the permanent income theory.     

THE GREAT OVERESTIMATION: TAX DATA AND INEQUALITY MEASUREMENTS IN THE UNITED STATES, 1913–1943

Historical measures of income inequality in the United States must grapple with the challenge of data quality. We examine one such problem affecting the well-known estimates of income inequality produced by Piketty and Saez (2003) using the records of the Internal Revenue Service (IRS). Prior to 1943, incomes were self-reported. Combined with lax enforcement on the part of the IRS, self-reporting of incomes could provide a misleading portrait of the income distribution. To test the accuracy of IRS records, we compare them to independently tabulated state income tax returns between 1919 and 1945 from states with more comprehensive and rigorously enforced tax collection procedures. State income tax records show lower overall levels of income inequality than IRS records. However, we still find that top income concentrations declined across the period between 1929 and World War II. These findings attest to the sensitivity of distributional estimation to the reporting selectivity and economic quality of underlying tax data, suggesting that the existing IRS-derived series systematically overstates top-income concentration in the interwar period. (JEL H2, N32, D31, E01)     

Simple adjustments of observed distributions for missing income and missing people

Correcting household survey distribution data for missing income or for undersampling may give an idea of the extent of possible biases in measuring inequality, especially when there are reasons to expect the missing income and people to belong to the top of the distribution. There are simple ways to do so when only an aggregate estimate of how much is missing is available. Atkinson had provided a formula to correct the Gini coefficient for the missing income, which was later generalized by Alvaredo (Econ. Lett. 110(3), 274–277 2011). This paper concentrates on the whole distribution and explores various alternative adjustment methods based on three key parameters: how much income, how many people are missing and on what range of income the correction should bear.     

Inequality and growth in advanced economies: an empirical investigation

This paper empirically investigates the effect of income and human capital inequality on economic growth in different regions of the world. In the estimation of a dynamic panel data model that controls for country-specific effects and takes into account the persistency of the inequality indicators, the results show a different effect of inequality on growth depending on the level of development of the region. Specifically, we find a negative effect of income and human capital inequality on economic growth, both in the sample as a whole and in the low and middle-income economies, an effect that vanishes or becomes positive in the higher-income countries.     

INEQUALITY AND TRUST: NEW EVIDENCE FROM PANEL DATA

We estimate the causal link from income inequality to generalized trust by reconsidering the country‐level evidence on this issue. First, we exploit the panel dimension of the data, thus controlling for any country unobservable time‐invariant variables, and find a negative relationship between the two variables that holds only for developed countries. Second, we focus on these advanced economies and provide instrumental variable estimates using the predicted exposure to technological change as an exogenous driver of inequality. According to our findings, the negative causal effect of inequality on trust is even larger than that coming from ordinary least squares estimation. We also provide new insights on the effects of different dimensions of inequality, exploiting measures of both static inequality—such as the Gini index and top income shares—and dynamic inequality—proxied by intergenerational income mobility. (JEL D31, O15, Z13)     

Wages of regular and irregular workers, the price of education, and income inequality

In this paper, we develop a model characterized by skill-biased technological change and increasing costs of education to investigate income inequality. Irregular workers cannot escape poverty by commencing investment in education because wage inequality between regular and irregular workers widens and the price of education increases with the average level of education. Moreover, if the productivity of elementary education is low relative to that of higher education, middle-income individuals are eventually unable to pursue higher education because the threshold for education expenditure rises with the price of education. Thus, income inequality may widen, even among regular workers.     

Income Inequality in Host Countries and Remittances: A Discussion of the Determinants of Portuguese Emigrants' Remittances

The evolution of income inequality in host countries affects the migrants working there. As a significant number of these migrants do not earn high incomes, this evolution tends to significantly affect migrants' abilities to send money back to their home countries. We test this hypothesis considering the evolution of income inequality in 59 countries with Portuguese emigrants through observations from 1996 to 2014. Using the system generalized method of moments (GMM) estimator, we found that an increase in income inequality leads to fewer remittances per emigrant. We also controlled income inequality with several determinants of remittances, including the real GDP per capita, unemployment rate, education skills, and the self‐employment rates of the host countries.