Handbook of Income Distribution PDF
Preview Handbook of Income Distribution
INTRODUCTION TO THE SERIES The aim of the Handbooks in Economics series is to produce Handbooks for various branchesofeconomics,eachofwhichisadefinitivesource,reference,andteachingsup- plementforusebyprofessionalresearchersandadvancedgraduatestudents.EachHand- bookprovidesself-containedsurveysofthecurrentstateofabranchofeconomicsinthe formofchapterspreparedbyleadingspecialistsonvariousaspectsofthisbranchofeco- nomics.Thesesurveyssummarizenotonlyreceivedresultsbutalsonewerdevelopments, fromrecentjournalarticlesanddiscussionpapers.Someoriginalmaterialisalsoincluded, but the main goal is to provide comprehensive and accessible surveys. The Handbooks areintendedtoprovidenotonlyusefulreferencevolumesforprofessionalcollectionsbut also possible supplementary readings for advanced courses for graduate students in economics. Kenneth J. Arrow and Michael D. Intriligator Handbook of INCOME DISTRIBUTION Volume 2A First edition Edited by ANTHONY B. ATKINSON Nuffield College, Oxford, UK FRANÇOIS BOURGUIGNON ParisSchoolof Economics, Paris, France North-Holland is an imprint of Elsevier Handbook of INCOME DISTRIBUTION Volume 2B First edition Edited by ANTHONY B. ATKINSON Nuffield College, Oxford, UK FRANÇOIS BOURGUIGNON ParisSchoolof Economics, Paris, France North-Holland is an imprint of Elsevier North-HollandisanimprintofElsevier TheBoulevard,LangfordLane,Kidlington,OxfordOX51GB,UK Radarweg29,POBox211,1000AEAmsterdam,TheNetherlands Copyright©2015ElsevierB.V.Allrightsreserved Nopartofthispublicationmaybereproduced,storedinaretrievalsystemortransmittedinanyformorby anymeanselectronic,mechanical,photocopying,recordingorotherwisewithoutthepriorwritten permissionofthepublisher PermissionsmaybesoughtdirectlyfromElsevier’sScience&TechnologyRightsDepartmentinOxford, UK:phone(+44)(0)1865843830;fax(+44)(0)1865853333;email:[email protected]. 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Notice Noresponsibilityisassumedbythepublisherforanyinjuryand/ordamagetopersonsorpropertyasamatter ofproductsliability,negligenceorotherwise,orfromanyuseoroperationofanymethods,products, instructionsorideascontainedinthematerialherein.Becauseofrapidadvancesinthemedicalsciences,in particular,independentverificationofdiagnosesanddrugdosagesshouldbemade BritishLibraryCataloguinginPublicationData AcataloguerecordforthisbookisavailablefromtheBritishLibrary LibraryofCongressCataloging-in-PublicationData AcatalogrecordforthisbookisavailablefromtheLibraryofCongress ISBN:978-0-444-59430-3(Set) ISBN:978-0-444-59428-0(Vol.2A) ISBN:978-0-444-59429-7(Vol.2B) ForinformationonallNorth-Hollandpublications visitourwebsiteathttp://store.elsevier.com/ CONTRIBUTORS Rolf Aaberge Statistics Norway, ResearchDepartmentand University of Oslo,Department of Economics, ESOP, Oslo, Norway Daron Acemoglu Massachusetts Institute of Technology,Cambridge, MA, USA Facundo Alvaredo EMod/OMI-Oxford University,Paris School of Economics, and CONICET, Oxford, UK Sudhir Anand Departmentof Economics, Universityof Oxford,Oxford,UK; and Department of Global Health and Population,Harvard School of Public Health,Boston, MA, USA Andrea Brandolini Bank of Italy, Directorate Generalfor Economics, Statistics, and Research,Rome, Italy Daniele Checchi Departmentof Economics, Universityof Milan, Milano, Italy and IZA, Bonn, Germany Pierre-Andre´ Chiappori Departmentof Economics, Columbia University, NY, USA Andrew E.Clark Paris School of Economics—CNRS,Paris,France Frank A. Cowell STICERD,London Schoolof Economics, London,UK ConchitaD’Ambrosio INSIDE,Universite´ du Luxembourg, Walferdange, Luxembourg Koen Decancq Centre for Social Policy Herman Deleeck, Universityof Antwerp, Antwerp; Department of Economics, Katholieke Universiteit Leuven,Leuven, and CORE, Universite´ catholique de Louvain, Louvain-la-Neuve, Belgium Jean-Yves Duclos (cid:1) IZA,De´partementd’e´conomique and CIRPEE,Universite´ Laval,Quebec, QC,Canada FrancescoFigari Universityof Insubria,Varese, Italy, and Institute for Social and Economic Research (ISER), Universityof Essex,Colchester, UK Emmanuel Flachaire Aix-Marseille Universite´, AMSE &IUF, Marseille, France Marc Fleurbaey Princeton University,Princeton, NJ, USA xiii xiv Contributors MichaelF.Fo€rster OECD, Paris, France Leonardo Gasparini CEDLAS-FCE-UniversidadNacional de LaPlata, and CONICET, LaPlata, Argentina Istva´n Gyo€rgy To´th Ta´rkiSocialResearchInstitute, Budapest, Hungary Markus Ja¨ntti Swedish Institute for SocialResearch (SOFI),Stockholm University, Stockholm, Sweden Stephen P. Jenkins DepartmentofSocialPolicy,LondonSchoolofEconomics,London;ISER,UniversityofEssex, Colchester, UK,and IZA, Bonn, Bonn, Germany Ravi Kanbur Cornell University,Ithaca,NY, USA Ive Marx HermanDeleeckCentreforSocialPolicy,UniversityofAntwerp,Antwerp,andInstituteforthe Studyof Labor,IZA,Bonn,Germany CostasMeghir Department of Economics,Yale University,New Haven, CT, USA Dominique Meurs University Paris Ouest Nanterre, EconomiX and Ined, France Salvatore Morelli CSEF,UniversityofNaples,FedericoII,Naples,Italy,andINETOxford,UniversityofOxford, Oxford,UK Suresh Naidu Columbia University,NY,USA BrianNolan DepartmentofSocialPolicyandInterventionandInstituteforNewEconomicThinkingatthe OxfordMartin School, University of Oxford, UK OwenO’Donnell ErasmusSchool of Economics &Tinbergen Institute,Erasmus UniversityRotterdam, Rotterdam, TheNetherlands, and School of Economics and Area Studies, University of Macedonia, Thessaloniki, Greece JavierOlivera InstituteforResearchonSocio-EconomicInequality,RUINSIDE,UniversityofLuxembourg, Luxembourg, Luxembourg AlariPaulus Institute for Social and Economic Research(ISER), Universityof Essex, Colchester, UK Thomas Piketty ParisSchool of Economics, Paris, France Contributors xv Sophie Ponthieux Institut national de lastatistique et des e´tudes e´conomiques, France Vincenzo Quadrini Universityof Southern California, CEPR, Los Angeles,CA, USA Martin Ravallion Departmentof Economics, Georgetown University,Washington,DC, USA Pascual Restrepo Massachusetts Institute of Technology,Cambridge, MA, USA Jose´-V´ıctor R´ıos-Rull Universityof Minnesota, Federal Reserve Bank of Minneapolis, CAERP, CEPR, NBER, Minneapolis,MN, USA James A. Robinson Harvard University,Cambridge, MA, USA John E.Roemer Yale University,NewHaven,CT, USA Jesper Roine Stockholm Institute of TransitionEconomics, Stockholm School of Economics,Stockholm, Sweden Wiemer Salverda AmsterdamInstituteforAdvancedLabourStudies(AIAS),andAmsterdamCentreforInequality Studies (AMCIS),University of Amsterdam, Amsterdam, TheNetherlands Agnar Sandmo Departmentof Economics, Norwegian School of Economics(NHH), Bergen, Norway Erik Schokkaert Departmentof Economics, Katholieke Universiteit Leuven, Leuven, and CORE, Universite´ catholique de Louvain, Louvain-la-Neuve, Belgium Paul Segal King’s International DevelopmentInstitute, King’s College London, London,UK Timothy Smeeding Universityof Wisconsin, Madison, WI, USA Holly Sutherland Institute forSocial and Economic Research(ISER), University of Essex, Colchester, UK Andre´-Marie Taptue´ (cid:1) De´partement d’e´conomique and CIRPEE, Universite´ Laval, Quebec, QC, Canada Jeffrey Thompson Federal Reserve Board of Governors,Washington, DC,USA Alain Trannoy Aix-Marseille University,EHESS and CNRS,France xvi Contributors EddyVan Doorslaer ErasmusSchool of Economics, TinbergenInstitute&Institutefor HealthPolicy and Management, Erasmus University Rotterdam, Rotterdam, The Netherlands TomVanOurti ErasmusSchool of Economics &Tinbergen Institute,Erasmus UniversityRotterdam, Rotterdam, TheNetherlands Daniel Waldenstro€m Department of Economics,Uppsala University, Uppsala, Sweden Gabriel Zucman London Schoolof Economics, London,UK INTRODUCTION: INCOME DISTRIBUTION TODAY Anthony B. Atkinson*, François Bourguignon† *NuffieldCollege,Oxford,UK †ParisSchoolofEconomics,Paris,France 1. SETTING THE SCENE When the first volume of the Handbook of Income Distribution was published in 2000, thesubjectofincomeinequalitywasnotinthemainstreamofeconomicdebate—despite the long history of engagement with this issue by earlier leading economists—see Chapter 1 by Agnar Sandmo. Fifteen years later, inequality has become very much centrestage.RisingincomeinequalityhasattractedtheattentionoftheU.S.President, ofinternationalbodiessuchastheIMFandtheOECD,andofparticipantsintheDavos meeting. ThisvolumeoftheHandbookaimstocovertheadvancesmadeinthepast15yearsin ourunderstandingoftheextent,causes,andconsequencesofinequality.Inthisrespect, thesecondvolumeshouldbeseenascomplementing,notsupplanting,thefirstvolume. Wehaveencouragedauthorstoconcentrateonthedevelopmentsthathavetakenplace since2000,andthechaptersshouldbereadinconjunctionwiththoseinvolumeI.Inthis Introduction,wegiveaflavoroftheissuesdiscussedandsomepersonalreflectionsonthe state of the subject. InourIntroductiontovolumeIoftheHandbook,wesaidthat“incomedistribution may be considered the normative economic issue ‘par excellence’” (Atkinson and Bourguignon, 2000, p. 41). People are concerned about economic inequality because theyfeelittobesociallyunjustorunfair.Itviolatesprinciplesofsocialjustice.Thenature oftheseprinciplesisofcoursemuchdebatedandthereisdisagreementaboutwhatcon- stitutesanunacceptablelevelofinequality.Peoplefocusondifferentdimensions.Butthe concern is with inequality intrinsically. At the same time, there is a second set of— instrumental—concernswiththeconsequencesofinequality.Thesocietalconsequences werehighlightedbyJosephStiglitzwhenheentitledhis2012book,Thepriceofinequality, where he says “the impact of inequality on societies is now increasingly well understood—higher crime, health problems, and mental illness, lower educational achievements, social cohesion and life expectancy” (inside cover). The social, political and cultural impacts of inequality have been the subject of the GINI (Growing xvii xviii Introduction:IncomeDistributionToday Inequalities’ Impacts) research project (Salverda et al., 2014; Nolan et al., 2014). In the second volume of the Handbook, some of these consequences feature, notably those regarding health in Chapter 17 by Owen O’Donnell, Eddy Van Doorslaer, and Tom Van Ourti. But the wider societal impact of inequality is not the principal focus of thechaptersthatfollow.Thisstillleavesmuchtobediscussed.Inequalityisofinstrumen- talimportancewithinthefieldofeconomicsitself.AswesaidinvolumeI,“incomedis- tributionassistsourunderstandingofvariousfieldsofeconomics”(2000,p.4).Now,as then,webelievethatthestudyofeconomicinequalityshouldbeattheheartofeconomic analysis. Uponreflectingtheissuescoveredinthisvolume,thisIntroductionconsiderssucces- sively:(a)theconceptsandapproachestoeconomicinequalitymeasurement,orthevar- ious facets of inequality (Section 2); (b) the care needed with data on inequality (Section3);(c)theexplanationsofchangesinvariousdimensionsofeconomicinequality, mostnotablythedistributionofincome,earningsandwealthandthelinkswithmacro- economics(Section4);and(d)thepoliciesavailabletoinfluencethosechangesortocor- rect those distributions (Section 5). WeplungestraightintothesubjectmatterwithFigure1,whichdepictstheevolution of economic inequality in the United States over the past century. The data are taken fromtheChartbookofEconomicInequality(AtkinsonandMorelli,2014),1butarepre- sented in four panels to highlight different dimensions of the distribution of income.2 The pictures provide a good basis for describing what is covered in this Handbook and for identifying some of the issues that are missing. The fact that most of the lines in the different panels are rising to the right is the main reason why inequality is on theagenda.Atthesametime,thelongrunofhistoricaldataoninequalityshowsusthat therehavebeenperiodsinthepastwheninequalityfellandwhenpovertywasreduced. Indeed the past 100 years has seen a broadly U-shaped pattern. The series shown in Figure1alsoallowustounderlineattheoutsetthecrucial,andoftenoverlooked,point that observed differences in income are not necessarily an indicator of the existence of inequality. Earnings at the top decile (shown in Panel C), for example, may have risen on account of increased costs of acquiring educational qualifications, and not represent anyriseininequalityoflifetimeincomes.Forthisreason,itisimportanttoaskwhatwe mean by “inequality.” 1 Analternativecoloredgraphcanbefoundhere:http://www.chartbookofeconomicinequality.com/wp- content/uploads/StaticGraphs/USA_staticgraph_coloured.pdf. 2 WearefollowingheretheadviceofSchwabish(2014)toavoid“spaghetti”charts.
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