Models and Measurement of Welfare and Inequality PDF
Preview Models and Measurement of Welfare and Inequality
Wolfgang Eichhorn (Ed.) Models and Measurement of Welfare and Inequality With 99 Figures Springer-Verlag Berlin Heidelberg New York London Paris Tokyo Hong Kong Barcelona Budapest Professor Dr. Dr. h.c. Wolfgang Eichhorn Universitiit Karlsruhe (TH) Institut fUr Wirtschaftstheorie und Operations Research Kollegium am SchloG, Bau IV 0-76128 Karlsruhe, FRG ISBN-13 :978-3-642-79039-3 e-ISBN-13 :978-3-642-79037-9 001: 10.1007/978-3-642-79037-9 This work is subject to copyright. All rights are reserved, whether the whole or part ofthe material is concerned, specifically the rights oft ranslation, reprinting, reuse of illustrations, recitation, broad casting, reproduction on microfilms or in other ways, and storage in data banks. Duplication oft his publication or parts thereofis only permitted under the provisions oft he German Copyright Law of September 9, 1965, in its version of June 24, 1985, and a copyright fee must always be paid. Violations fall under the prosecution act of the German Copyright Law. © Springer-Verlag Berlin· Heidelberg 1994 Softcoverreprint of the hardcover 1st edition 1994 The use ofr egistered names, trademarks, etc. in this publication does not imply , even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulati ons and therefore free for general use. 4212202-543210 -Printed on acid-free paper Preface The literature on economic problems connected with measuring and modelling of welfare and inequality has grown rapidly within the last decade. Since this literature is scattered throughout a great number of journals on economics, economic theory, econometrics, and statisties, it is difficult to get an adequate picture of the present state of the art. Therefore books should appear from time to on: time, which offer a representative cross-section of the latest results of research the subject. This book offers such material. It contains 54 articles by 84 authors from four of the five continents. Each paper has been reviewed by two referees. As a conse quence, the contributions of this book are revised versions, or, in many cases, revised revisions of the original papers. The book is divided into four parts. Part I: Measurement of Inequality and Poverty This part contains eleven papers on theory and empirical applications of inequa lity and/or poverty measures. Two contributions deal with, among other things, experimental findings on questions concerning the acceptance of distributional axioms. Part II: Taxation and Redistribution Distributional or, rather, redistributional aspects play an important role in Part II. The topics of the 14 papers included in this part range from tax progressivity and redistribution, allocative consequences of splitting under income taxation, and connections between income tax and cost-of-living indices to merit goods and welfarism as well as to welfare aspects of tax reforms. Part III: Models and Measurement of Welfare Welfare is the central theme of the 20 papers which form Part III. A wealth of approaches to modelling and measuring'welfare are presented, in particular via utility, distance, and income compensation functions, interpersonal compari sons, consumption plans, public budgeting, cost of living indices, money metric measures, and aggregation procedures. Some of the contributions take environ mental externalities, hazardous waste, resources and so-called functionings into account. One paper investigates welfare implications of changing the structure of airline industries. VI Part IV: Models and Measurement Related to Welfare and Inequality This part consists of nine contributions. In five of them varlous systems of axioms represent models aimed at characterizing or analyzing rational or distri butive justice, employment segregation indices, productivity indices, and mono tonicity and separability of functions. The remaining four papers are devoted to nonlinear models of optimal consumer behavior, of efficient capital accumula tion structures, of multi-sectoral economies with quantity rationing, and to the use of fuzzy set techniques in the context of welfare decisions. I express my warmest thanks to all contributors, referees and to my friends Satya Chakravarty, Albert Christmann, Susanne Fuchs-Seliger, Tilmann Gerhards, Axel Haberer, Bernhard Olt, Andreas Pfingsten, Klaus Sandbiller, Frank Stehling, Christof Weinhardt, and Iris Winzrieth who helped to organize the Fifth Karlsruhe Seminar on Models and Measurement of Welfare and Inequality at the University of Karlsruhe (August 12 - 19, 1990) and/or to conclude the book. At this symposium first discussions of several topics in this book took place. Many thanks are also due to Mrs Ingeborg Kast for her untiring technical work in putting this book together. I dedicate this book to my friend Janos Aczel, to whom not only I but also many members of our Institut fOr Wirtschaftstheorie und Operations Research owe much gratitude for the untiring mathematical advice he has given us. Janos Aczel received the PhD honoris causa from the Faculty of Economics of the Karlsruhe University on the first day of the 1990 symposium. Karlsruhe, March 1994 Wolfgang Eichhorn Contents Preface............................................................... V Part I: Measurement of Inequality and Poverty Amiel, Y., and F. A. Cowell: Inequality Changes and Income Growth. . . . . . . 3 Chakravarty, S. R., and W. Eichhorn: Measurement of Income Inequality: Observed Versus True Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Garner, T. /., and K. de Vos: Income Sufficiency, Expenditures and Subjective Poverty: Results from the United States and The Netherlands. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Harrison, E., and C. Seidl: Acceptance of Distributional Axioms: Experimental Findings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Huber, H., T. Spuhler, and A. Vogt: The Age-Adjusted Inequality Measure of Gini Used to Measure Inequality in Health Care Costs. . . . . . . . . . . . .. 100 Krtscha, M.: A New Compromise Measure of Inequality. . . . . . . . . . . . . . . . .. 111 I.e Breton, M.: Inequality, Poverty Measurement and Welfare Dominance: An Attempt at Unification......................................... 120 Merkies, A. H. Q. M.: The Scope of Inequality Coefficients.......... ....... 141 Moyes, P., and A. Shorrocks: Transformations of Stochastic Orderings. . . . .. 162 Schmid, F.: Decomposition of Inequality Measures - Theory and Empirical Application. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 176 Thistle, P. D.: On Atkinson's Index and Consensus in Rankings of Income Distributions.................................................... .. 193 Part II: Taxation and Redistribution Balle, B. M.: Income Tax and Cost-of-Living Indices. . . . . . . . . . . . . . . . . . . . . . .. 209 Bamberg, G.: Risk-Taking Behavior and Inflation Adjustment of Personal Income Taxes .................................................... 226 Buchholz, W., and W. F. Richter: The Analytics of Splitting under Income Taxation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 237 Duschek, K.-J., T. Farlcen, and M. Rose: Welfare Effects of Abolishing the German Business Taxes - An Applied General Equilibrium Analysis .. 253 VIII Haller, H., and c.-c. Yang: Welfare or Pareto-Improving Directions of Piecemeal Tax Reform. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286 Lambert, P. J.: Redistribution Through the Income Tax.. .......... .... ... . 299 Pfingsten, A., and J. Schneider: Retrieving Inequality Concepts and Progressivity Objectives from Tax Functions via Approximations .. . . . 316 Richter, W. F., and J. Weimann: Merit Goods and Welfarism.............. 326 c.: Seidl, Measurement of Tax Progressivity with Nonconstant Income Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337 Spahn, P. B., H. Kaiser, and T. Kassella: The Taxation of Married Couples in Germany: Distributive and Allocative Aspects. . . . . . . . . . . . . . . . . . . . . . . 361 Tillmann, G.: Income Equality and Income Taxation............ .... .... .. 396 Wagenhals, G.: Income Tax Reform in Germany: A Welfare Analysis. . . . . . 419 Wiesmeth, H.: Income Taxes: The Interaction between Government and Labour Unions.................................................... 433 Yitzhaki, S.: On the Progressivity of Commodity Taxation. . . . . . . . . . . . . . . . . 448 Part III: Models and Measurement of Welfare Ahlheim, M.: On the Use of the Distance Function for Measuring Welfare in Quantity Constrained Regimes ..................................... 469 Basu, K.: On Interpersonal Comparison and the Concept of EqUality. . . . . . . . 491 Beckmann, M. J.: Welfare Aspects of Consumption Plans.................. 511 c., Blackorby, and R. R. Russell: Public Budgeting and Social Welfare....... 516 Bossert, W., and F. Stehling: On the Uniqueness of Cardinally Interpreted Utility Functions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 537 Chipman, J. S., and J. c. Moore: The Measurement of Aggregate Welfare. . . . 552 Diamond, C. A., E. Maasoumi, M. Nieswiadomy, and D. J. Slottje: The Effect of Relative Price Changes and Cost of Living Adjustments on Some Welfare Indices.......................................... 593 Ebert, U.: Consumer's Welfare and Price Uncertainty. . . . . . . .. . . . . . . . . . . . . 612 Fuchs-Seliger, S.: A Reconsideration of Income Compensation Functions in Social Welfare Theory. . . . . . . . .. . .. . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . 630 Good, D. H., L.-H. Roller, and R. C. Sickles: EC Integration and the Structure of the Franco-American Airline Industries: Implications for Efficiency and Welfare.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 643 IX Cottinger, H. W.: Regulation and Control of Hazardous Wastes: A Welfare- Theoretic Analysis.. .. . . . ................. . . ..... . ..... . . ... ... . .. 666 Hammond, P. J.: Money Metric Measures of Individual and Social Welfare Allowing for Environmental Externalities.. . ....... . ...... . . ... . .. .. 694 Jenkins, S. P.: 'Social Welfare Function' Measures of Horizontal Inequity. .. 725 Jenson, D., and M. Jerison: Commodity Aggregation and Slutsky Asymmetry. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 752 Lloyd, P. J., and A. G. Schweinberger: Indices of Welfare for the Economy and Households in Distorted Open Economies. . . . . . . . . . . . . . . . . . . . . .. 765 Lovell, C. A. K., S. Richardson, P. Travers, and L. Wood: Resources and Functionings: A New View of Inequality in Australia. . . . . . . . . . . . . . .. 787 Mosler, K.: Multidimensional Welfarisms............................... 808 Myles, G. D.: Welfare Loss with Intermediate Goods... .. .. .... . ... . . .... .. 821 Romer, A. U., and W. W. Pommerehne: Valuing Reductions of Public Risks: The Case of Hazardous Wast................................. 841 Weymarlc, J. A.: Harsanyi's Social Aggregation Theorem with Alternative Pareto Principles ................................................ " 869 Part IV: Models and Measurement Related to Welfare and Inequality Boettcher, H.: The Use of Fuzzy Set Techniques in the Context of Welfare Decisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 891 Bradtke, T.: Monotonicity and Separability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 900 Chakravarty, S. R., and J. Silber: Employment Segregation Indices: An Axiomatic Characterization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 912 Fiire, R., and S. Grosskopf: Theory and Calculation of Productivity Indexes.. 921 Gaertner, W., and J. Jungeilges: A Model of Interdependent Consumer Behavior: Nonlinear Dynamics in R2. . .............. . .... . ... . .. . .. 941 Klemisch-Ahlert, M., and H. Peters: An Impossibility Result Concerning Distributive Justice in Axiomatic Bargaining... . . . .. .. . .. . ... . .. ... .. %3 Kolm, S.-c.: Rational Justice and Equality ............................. '" 970 Lehmann-Waffenschmidt, M.: Existence and Stability of Equilibrium in a Multisectoral Model with Quantity Rationing ...................... " 993 Wolff, R.: Efficient Stationary Capital Accumulation Structures of a Biconvex Production Technology ................................... 1011 Part I Measurement of Inequality and Poverty INEQUALITY CHANGES AND INCOME GROWTH Yoram Amiel and Frank A. Cowell Ruppin London School of Institute Economics 1. Introduction Inequality changes and income growth are two of the most important issues which concern economic policy-makers. Evaluation of these two economic phenomena is, accordingly, a central problem in the field of applied welfare economics. Indeed it is the issue of prime concern in the literature on the social welfare approach to inequality measurement. Welfare economists usually consider the measurement of income inequality by specifying a set of axioms that an inequality ordering or social welfare ordering should fulfil. From such an axiom structure it is sometimes possible to construct a fully specified social welfare function, the contours of which will imply a set of specific tradeoffs of mean income versus inequality~ the derived social welfare function will also imply a particular inequality measure. Typically the axioms invoked for this purpose include the behaviour of the function under changes in levels of total income, in income distribution and in the size of the population. In this fashion the overall problem of appraising income distributions is effectively "decomposed" into a number of separate intellectual components: one involving rankings of distributions
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