100% satisfaction guarantee Immediately available after payment Both online and in PDF No strings attached
logo-home
Summary Economic Analysis of Inequality: Core lectures (powerpoint lesnotities) $6.97
Add to cart

Summary

Summary Economic Analysis of Inequality: Core lectures (powerpoint lesnotities)

1 review
 433 views  28 purchases
  • Course
  • Institution

Course: Economic Analysis of Inequality (with Capita Selecta) Study guide number: 2300PSWEAI Study: Sociology, SEW, elective course other directions (master) Prof.: Koen Decancq The exam is an open book exam, so you can take this summary to your exam. It contains all powerpoint slides (written out...

[Show more]

Preview 10 out of 108  pages

  • November 21, 2019
  • 108
  • 2019/2020
  • Summary

1  review

review-writer-avatar

By: loregroen • 1 year ago

avatar-seller
Economic Analysis of Inequality
(Koen Decanq)




CORE LECTURES: Powerpointpresentaties + lesnotities

, 1


Inhoud
Lecture 1: From principles to policy (27/9) ............................................................................................... 4
1.0. Practicalities...................................................................................................................................... 4
The Exam ............................................................................................................................................. 4
1.1. Setting the scene............................................................................................................................... 4
1.1.1 Hot topic ..................................................................................................................................... 4
1.1.2 Roadmap ..................................................................................................................................... 4
1.2. Normative reasons (because of our value judgments about inequality) ............................................. 8
Lecture 2: Charting Income Distributions (2/10) ..................................................................................... 10
2.1. Introduction .................................................................................................................................... 10
2.1.1 Concepts ................................................................................................................................... 10
2.2. 4 types of functions ......................................................................................................................... 11
2.2.1 Probability Density Function ...................................................................................................... 12
2.2.2 Cumulative Distribution Function (CDF) ..................................................................................... 16
2.2.3 Quantile Function ...................................................................................................................... 18
2.2.4 Lorenz Curve ............................................................................................................................. 19
Lecture 3: Partial Social Evaluations ....................................................................................................... 22
3.1. Social Welfare Functions ................................................................................................................. 22
3.1.1 Continuity (CONT) ..................................................................................................................... 22
3.1.2 Separability (SEP) ...................................................................................................................... 23
3.1.3 Population Replication (POP) ..................................................................................................... 24
3.1.4 Anonymity (ANOM) ................................................................................................................... 24
3.1.5 Monotonicity (MON) ................................................................................................................. 25
3.1.6 A class of Social Welfare Functions ............................................................................................ 25
3.2. Stochastic Dominance ..................................................................................................................... 26
3.2.1 First order stochastic dominance ............................................................................................... 26
3.2.2 Second order stochastic dominance .......................................................................................... 28
3.2.3 Third order stochastic dominance ............................................................................................. 32
3.2.4 And beyond… ............................................................................................................................ 34
Lecture 4: Complete Social Evaluations .................................................................................................. 35
4.0. Recall .............................................................................................................................................. 35
4.1. Iso-elastic social welfare functions .................................................................................................. 35
4.2. Equally Distributed Equivalent......................................................................................................... 41

, 2


4.2.1 So far we obtained .................................................................................................................... 41
4.2.2 Equally Distributed Equivalent ................................................................................................... 41
4.3 Reading for this lecture .................................................................................................................... 43
Lecture 5: Partial inequality comparisons (18/10) .................................................................................. 44
5.1 The generalized Lorenz curve ........................................................................................................... 44
5.1.1 Generalized Lorenz Curve .......................................................................................................... 44
5.1.2 Generalized Lorenz dominance.................................................................................................. 45
5.2 The Lorenz curve .............................................................................................................................. 47
5.2.1 Lorenz dominance (equal means) .............................................................................................. 47
5.2.2 Lorenz dominance and invariance ............................................................................................. 50
Lecture 6: Complete inequality comparisons (23/10) ............................................................................. 56
6.0 Introduction ..................................................................................................................................... 56
6.1 The Atkinson Family ......................................................................................................................... 56
Remember ......................................................................................................................................... 56
Founding Family................................................................................................................................. 57
6.2 The Gini family ................................................................................................................................. 60
6.3 The Generalized Entropy family (NOT ON EXAM).............................................................................. 70
Subgroup decomposability ................................................................................................................. 71
In sum.................................................................................................................................................... 72
Lecture 7: Measuring Poverty (25/10) .................................................................................................... 73
7.0 Introduction ..................................................................................................................................... 73
7.0.1 Measuring poverty .................................................................................................................... 73
7.1 Poverty line ...................................................................................................................................... 73
7.1.1 Absolute poverty line ................................................................................................................ 73
7.1.2. Relative poverty line ................................................................................................................. 73
7.1.3. Weakly relative poverty line ..................................................................................................... 74
7.2 Poverty measures (complete poverty comparisons) ......................................................................... 75
7.2.1 Focus ......................................................................................................................................... 75
7.2.2 Monotonicity............................................................................................................................. 78
7.2.3 Transfer..................................................................................................................................... 79
7.3 Poverty dominance (partial poverty comparisons) ........................................................................... 82
7.3.1 Fixed measure, all poverty lines ................................................................................................. 82
7.3.2 All measures, fixed poverty line (NOT EXAMEN) ........................................................................ 83

, 3


Lecture 8: Quantifying Redistribution (13/11) ........................................................................................ 84
8.0 Literature ......................................................................................................................................... 84
8.1 Income taxation ............................................................................................................................... 84
8.2 Impact of (income) taxation on inequality ........................................................................................ 90
Lecture 9: Optimal redistribution (15/11) ............................................................................................... 98
9.1 How much should we redistribute? .................................................................................................. 98
9.1.1 When Pigou-Dalton transfers are possible ................................................................................. 98
9.1.2 When Pigou-Dalton transfers are NOT possible ......................................................................... 99
9.2 The social planner wants to choose the level of redistribution so that a social welfare function 𝑊(. ) is
maximized given the constraints she faces. .......................................................................................... 102
X.Some conclusions/Interesting points................................................................................................. 103
X.0 Structure ........................................................................................................................................ 103
X.1. Lecture 1-3 .................................................................................................................................... 103
X.1.1 First order stochastic dominance ............................................................................................. 103
X.1.2 Second order stochastic dominance ........................................................................................ 104
X.1.3 Two person Graph ................................................................................................................... 105
X.2 Lecture 4-5 ..................................................................................................................................... 106
X.2.1 Lorenz dominance and invariance ........................................................................................... 106
X.2.2 Gini family ............................................................................................................................... 106
X.3 Lecture 6-7 ..................................................................................................................................... 107
X.3.1 Poverty deficit ......................................................................................................................... 107
X.4 Lecture 8 ........................................................................................................................................ 107
X.4.1 Impact of taxation on inequality .............................................................................................. 107

, 4



Lecture 1: From principles to policy (27/9)
Core: different people may have different perspectives to look at welfare, wellbeing…

1.0. Practicalities
The Exam
 Study material
o Articles on Blackboard (read it in a clever way)
o Slides on Blackboard
o Personal notes taken at lectures (most important)
 Graphs you have to make it by yourself
o No reproduction, but understanding of material!
 Open-book, written exam about material covered in core lectures
 Take-home exam about material covered in additional lectures
o When you come to the exam of the written exam you give it back

1.1. Setting the scene
1.1.1 Hot topic
 Not only more interest in the street, media, policymakers, but also in the academic world
o Ex. Pickety, Stiglitz
 This is an economic course

1.1.2 Roadmap
1. What is inequality?

3 Concepts:

 (Social) welfare: Evaluation of (income) distribution according to its size and inequality (see lecture
3-4): what is the better (most desirable) distribution, the core
o Grootte van de pizza + verdeling ervan
 Inequality: Evaluation of (income) distribution according to its inequality (see lecture 5-6)
o Verdeling van de pizza (geen nadruk op de grootte)
 Poverty: Evaluation of lower part of (income) distribution (see lecture 7)

 Different concepts! (think of China nowadays, inequality raises and poverty decreases)
 Creating conceptual clarity is one of the main aims of the course

, 5


Survey exercise

 More ethically intuitions/normative
 How we can measure inequality knowing that there are different intuitions
 We try to describe the normative side of economy

8

7
currency of "Hypothesia"




6

5

4 Programme X
Programme Y
3

2

1

0
Ann Bob Charlotte Danny

 The pizza is bigger in Y, but more equal in X

6

5
currency of "Hypothesia"




4

3 Programme X
Programme Y
2

1

0
Ann Bob Charlotte Danny

 X is equal
 Y is not equal
 If you take from Ann (X) to Danny (X) -> you reach the Y distribution (= transfer that is called Pigou-
Dalton: take from the poor give to the rich: inequality goes up)
 Y is more unequal than X

, 6


6
currency of "Hypothesia"
5

4

3 programme X
Programme Y
2

1

0
Ann Bob Charlotte Danny

 Now we compare pizza’s from another size
 Reaching Y is doubling all people’s income from X
o Intuition 1: inequality is the same
o Intuition 2: inequality is increased
o Some think relative, some think absolute

2. Why should we care about inequality?

2.1 Instrumental reasons (because of the consequences of inequality on other outcomes)

 Recent epidemiological insights (Wilkinson & Pickett, 2009)
o X-axe is always income inequality
o Y-axe is a bad thing (health problem, crime…)
o Positive relation, not at all a causal relation (maximum a correlation)
o http://www.youtube.com/watch?v=cZ7LzE3u7Bw (! Part of the study material)

, 7




 Economists are predominantly interested in the effect of inequality on economic output (GDP) or
its growth (not interested in crime, health…)
 Founding father: Simon Kuznets
o Kuznets curve: horizontal: low to high GDP/output – gini first raises then decreases
o Unfortunately life is more complicated
 Recent revival: Piketty (Capital), Milanovic (Global Inequality)
 Establishing the (causal) effect of inequality on economic growth is a VERY DIFFICULT question




 Because inequality is not an exogenous variable (given)
 (it is not assigned randomly to countries)
 Causal empirical statements are hard to make (see your econometrics course)
 Also theoretically it is a hard question
 Monopoly effect: the rich may gain a lot by protecting their acquired positions (rent seeking)
o The rich try to protect their rent, organize the society that the poor not becoming rich
o USA: education system: the rich don’t want the poor becoming rich
o USA: no progressive taxation system
 Incentive effect: Inequality creates incentives for investment and entrepreneurs (a little bit of
inequality is good).
o Wealth generated by the rich trickles down to lower parts of distribution
 Which of both effects, the incentive or the monopoly effect, is the biggest

, 8



1.2. Normative reasons (because of our value judgments about inequality)
Inequality is unfair

 When is a social situation fair? What is fair?
o We think inequality isn’t fair
o The central question in the work of John Rawls
 Impartiality as crucial requirement for fairness: Rawls proposes to think about the society
behind a veil of ignorance
o Thought experience: jump out of a plane and fall in the shoes of a rich/poor person
healthy/sick person – the situation in the plane: sitting there, how we are going to organize
the society (fair society behind the veil of ignorance)
 How would/should individuals behave behind such a veil of ignorance?
 Answer of Rawls: use the difference principle = you look at the guy who is the worst off (ex. Plane-
shoe), he has to be best off

 The difference principle: evaluate a social situation by looking at the worst-off individual

An example: in which society you wil land (plane-shoe exemple)




 The worst thing that can happen in A (ind 1), in situation B (ind 3)




 For Rawls it doesn’t matter only the person who is worst off

, 9


Harsanyi

 How would/should individuals behave behind such a veil of ignorance?
 Answer of Rawls: use the difference principle
 Answer of Harsanyi: use expected utility (as if it were a lottery)



Open philosophical (ethical) debate about what a fair income distribution is.

 Yet, most people will agree about the ingredients of the problem:

o The size of economic output (the size of the cake) – mister average

o The inequality distribution of economic output (the distribution of the cake) – mister
Rawls

o How to trade off to the both??

The benefits of buying summaries with Stuvia:

Guaranteed quality through customer reviews

Guaranteed quality through customer reviews

Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.

Quick and easy check-out

Quick and easy check-out

You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.

Focus on what matters

Focus on what matters

Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!

Frequently asked questions

What do I get when I buy this document?

You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.

Satisfaction guarantee: how does it work?

Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.

Who am I buying these notes from?

Stuvia is a marketplace, so you are not buying this document from us, but from seller uastudent. Stuvia facilitates payment to the seller.

Will I be stuck with a subscription?

No, you only buy these notes for $6.97. You're not tied to anything after your purchase.

Can Stuvia be trusted?

4.6 stars on Google & Trustpilot (+1000 reviews)

52510 documents were sold in the last 30 days

Founded in 2010, the go-to place to buy study notes for 14 years now

Start selling
$6.97  28x  sold
  • (1)
Add to cart
Added