CONTENTS
Introduction to the Series = ⅴ
Contents of the Handbook = ⅶ
Introduction
Income Distribution and Economics / A. B. ATKINSON ; F. BOURGUIGNON = 1
1. Factor share theories of income distribution = 5
1.1. A simple static and competitive framework = 6
1.2. Skilled／unskilled wage differential = 9
1.3. CGE modelling = 11
1.4. Capitalism and socialism = 12
1.5. Limitations = 13
2. Factor accumulation and income distribution = 13
2.1. Stochastic theories = 14
2.2. The dynastic consumption model as a benchmark and the ambiguity of bequest theories = 15
2.3. Heterogeneity in the accumulation factor ρ and human capital theory = 16
2.4. Market imperfections and wealth dependent accumulation rates = 17
2.5. Accumulation rates with endogenous prices : distribution and growth = 19
3. Labour market and income distribution = 21
3.1. Selection theory as an economic explanation of skewness = 22
3.2. Involuntary selection, segmentation and discrimination = 23
3.3. Imperfect information on workers' and jobs' characteristics : sorting and matching = 24
3.4. Imperfect observability of effort and agency problems = 25
3.5. Conclusion of our theoretical tour d'horizon = 26
4. Working with income distribution data = 26
4.1. Representation of the distribution and inequality measurement = 28
4.2. The recipient unit = 34
4.3. Definition of income = 36
4.4. The time dimension = 38
4.5. Conclusion = 40
5. Income distribution, economic inequality and social justice = 41
5.1. The cake division problem : utilitarianism, welfarism and the measurement of inequality = 42
5.2. Extending the concept of income to economic well-being and coping with heterogeneity = 44
5.3. From the inequality of income to that of opportunities and social justice = 46
5.4. Conclusion = 50
6. Guide to the Handbook chapters = 50
References = 53
Chapter 1
Social Justice and Distribution of Income / A. K. SEN = 59
1. Motivation = 60
2. Informational basis of theories of justice = 61
3. Utilitarianism and welfarist justice = 63
4. Libertarian theories of justice = 68
5. Rawlsian theory of justice = 69
6. Quality of life, functionings and capabilities = 73
7. Income inequality and non-income concerns = 76
8. Is every subgroup a community? = 79
9. Concluding remarks = 80
References = 81
Chapter 2
Measurement of Inequality / F. A. COWELL = 87
1. Introduction = 89
1.1. Inequality and income distribution = 89
1.2. Overview = 92
2. Distributional judgements = 93
2.1. Income and the individual = 93
2.2. Distributional concepts = 94
2.3. Distributional and welfare axioms = 96
3. Ranking distributions = 100
3.1. Formal and informal approaches = 101
3.2. First-order distributional dominance = 102
3.3. Second-order distributional dominance = 103
3.4. Tools for income distribution = 104
4. An axiomatic approach to inequality measurement = 107
4.1. Insights from information theory = 109
4.2. Distance, rank and inequality = 111
5. Welfare functions = 113
5.1. Insights from choice under uncertainty = 113
5.2. Basic concepts = 113
5.3. Social welfare and inequality = 118
6. The structure of inequality = 123
6.1. The basic problem = 123
6.2. Approaches to decomposition by subgroup = 124
6.3. Applications = 128
7. Multidimensional approaches = 130
7.1. The general problem = 130
7.2. Decomposition by income source = 130
7.3. Income and needs = 131
7.4. Distributional change = 133
8. Empirical implementation = 133
8.1. Some general issues = 133
8.2. Using sample data = 135
8.3. A standard class of inequality measures = 137
8.4. Extensions = 140
8.5. Small sample problems = 141
8.6. The problem of grouped data = 142
8.7. Modelling with functional forms = 145
8.8. Re-using inequality measures = 149
9. A brief conclusion = 149
References = 150
Chapter 3
Three Centuries of Inequality in Britain and America / P. H. LINDERT = 167
1. Choosing issues, measures, and methods = 170
1.1. Redistributable income or living standards = 170
1.2. The pre-fisc focus = 171
1.3. Causal methods = 172
1.4. The Kuznets conjecture = 172
2. Was there a rise in inequality sometime before 1914? = 173
2.1. Britain, 1688-1914 = 174
2.2. When did American inequality rise? = 186
3. When incomes leveled = 192
3.1. Britain = 192
3.2. America = 195
4. Rising inequality since the 1970s = 200
4.1. Britain = 200
4.2. America = 201
5. The main sources of episodic inequality movements = 205
6. Lessons about long-run changes = 208
6.1. The Kuznets curve as a Milky Way = 208
6.2. The Robin Hood paradox = 208
References = 210
Chapter 4
Historical Perspectives on Income Distribution : The Case of Europe / C. MORRISSON = 217
1. Long-term evolution of national income distribution = 220
1.1. Denmark = 221
1.2. Norway = 223
1.3. Sweden = 225
1.4. Finland = 228
1.5. The Netherlands = 229
1.6. The German states and Germany = 231
1.7. France = 233
2. Intersectorial and intrasectorial inequality = 239
3. Factors explaining the long-term evolution of distribution = 249
Appendix A = 256
Appendix B = 257
Appendix C = 258
References = 259
Chapter 5
Empirical Evidence on Income Inequality in Industrial Countries / P. GOTTSCHALK ; T. M. SMEEDING = 261
1. Introduction = 262
2. Conceptual and measurement issues = 264
2.1. Ideal measure = 264
2.2. Impact of measurement error = 265
2.3. Definitions and measures = 267
3. Differences in inequality across OECD countries = 273
3.1. Data and measurement choices = 273
3.2. Differences in the level of inequality = 275
4. Differences in trends in inequality = 285
4.1. Trend in income inequality : 1980 to 1995 = 285
4.2. Longer term trends = 292
5. Mobility = 294
6. Summary and research implications = 296
References = 304
Chapter 6
Income Poverty in Advanced Countries / M. J$$\ddot {A}$$NTTI ; S. DANZIGER = 309
1. Introduction = 310
2. Conceptual and practical issues in the definition of poverty = 311
2.1. A conceptual model of household income formation and poverty = 311
2.2. Definitions of poverty = 313
2.3. The space for poverty measurement = 313
2.4. Equivalence scales = 316
2.5. Unit of analysis and intra-family distribution = 322
2.6. The relevant accounting period = 322
2.7. Longitudinal aspects of poverty = 324
2.8. Poverty comparisons and sources = 324
2.9. The poverty line = 326
2.10. Aggregation : the choice of poverty index = 326
2.11. Measurement errors and poverty measurement = 332
3. Evidence about the extent of cross-sectional poverty = 333
3.1. Changes in poverty within countries over time = 333
3.2. Poverty orderings = 336
4. Decomposing poverty across population groups = 344
4.1. Comparing poverty risks of different groups = 344
4.2. Poverty rankings of different demographic groups = 345
5. The impact of public policy on poverty = 348
5.1. Measuring the impact of public policy on poverty = 349
5.2. Empirical evidence on the impact of public policy on poverty = 353
6. Poverty dynamics = 353
6.1. Intra-generational poverty dynamics = 353
6.2. Family background and poverty = 358
7. Summary = 362
Appendix : Data sources = 363
References = 373
Chapter 7
Theories of the Distribution of Earnings / D. NEAL ; S. ROSEN = 379
0. Introduction = 380
1. The characteristic skew of earnings distributions = 381
1.1. Stochastic process theories = 382
1.2. Correlated increments and common factors = 383
1.3. Scale-of-operations effects and superstars = 384
2. Selection theory = 385
2.1. The Roy model = 386
2.2. Selection on ability and stratification = 389
2.3. Factor price equalization? = 391
3. Learning, sorting and matching = 391
3.1. The basic learning model = 392
3.2. Sorting by comparative advantage = 394
3.3. Matching models = 397
3.4. Learning and general equilibrium = 398
3.5. Summary = 399
4. Human capital = 400
4.1. Compensation for investments in training = 400
4.2. Optimal investment = 402
4.3. Labor supply = 408
5. Insurance, agency and earnings = 412
5.1. Attitudes toward risk = 413
5.2. Effort incentives and compensation in internal labor markets = 414
5.3. Agency and performance bonds = 417
5.4. Efficiency wage models = 419
6. Conclusion = 421
References = 423
Chapter 8
Theories of Persistent Inequality and Intergenerational Mobility / T. PIKETTY = 429
1. Introduction = 430
1.1. The dimensions of conflict about intergenerational mobility = 430
1.2. Organization of this chapter = 435
2. Persistent inequality and the family transmission of wealth = 436
2.1. The contribution of inheritance to the persistence of inequality = 436
2.2. The long-run dynamics of wealth inequalities with exogenous savings = 438
2.3. The long-run dynamics of wealth inequalities with dynastic utility functions = 440
2.4. "Active" vs. "passive" inheritance : the costs of redistribution = 442
3. Persistent inequality and the family transmission of ability = 446
3.1. The transmission of productive abilities = 446
3.2. Efficient inequality and the costs of redistribution = 448
3.3. Taste-based persistent inequality = 451
4. Persistent inequality and the imperfect capital market = 453
4.1. Credit constraints vs. first-best credit = 453
4.2. What do we know about the importance of credit constraints for mobility? = 456
4.3. Poverty traps vs. low-mobility traps = 459
5. Persistent inequality and local segregation = 462
5.1. Models of inefficient segregation into unequal neighborhoods = 462
5.2. The policy implications of local segregation = 464
5.3. Other levels of segregation = 467
6. Persistent inequality and self-fulfilling beliefs = 468
6.1. The theory of discrimination = 468
6.2. Sociologists' theories of self-fulfilling inequality = 471
References = 473
Chapter 9
Macroeconomics of Distribution and Growth / G. BERTOLA = 477
1. Introduction = 479
1.1. Overview = 479
1.2. Preliminaries = 481
2. Aggregate accumulation and distribution = 483
2.1. Neoclassical allocation and accumulation = 483
2.2. Factor income distribution and growth = 490
3. Investments, savings and financial markets = 498
3.1. Finite lives = 499
3.2. Self-financed investment = 502
3.3. Idiosyncratic uncertainty = 509
4. Politics and institutions = 518
4.1. Political sources of distortionary taxation = 520
4.2. Dimensions of heterogeneity and distribution = 521
4.3. The menu and timing of policies = 523
5. Empirical evidence = 527
5.1. Convergence across countries = 527
5.2. Growth and inequality within countries = 531
6. Other directions of research = 533
References = 535
Chapter 10
Wealth Inequality, Wealth Constraints and Economic Performance / P. BARDHAN, ; S. BOWLES ; H. GINTIS = 541
1. Introduction = 542
2. Wealth and efficiency when risk is noncontractible = 546
3. Land contracts = 560
4. Wealth, risk aversion and insurance = 567
5. Wealth constraints and residual claimancy in team production = 577
6. Initial asset inequality and cooperation on the local commons = 587
7. Conclusion = 595
References = 597
Chapter 11
The Distribution of Wealth / J. B. DAVIES ; A. F. SHORROCKS = 605
1. Introduction = 606
2. Theoretical approaches = 608
2.1. Simple models of wealth distribution = 609
2.2. Lifecycle accumulation = 612
2.3. Intergenerational issues = 621
2.4. Self-made fortunes = 627
3. Empirical evidence on wealth inequality = 628
3.1. Household surveys = 629
3.2. Wealth tax data = 635
3.3. Estate multiplier estimates = 637
3.4. The investment income method = 642
3.5. Direct wealth estimates for named persons = 642
3.6. Portfolio composition = 643
3.7. Explaining national differences and changes over time = 645
4. Applied work on the determinants of wealth distribution = 648
4.1. Simulation studies = 648
4.2. Intergenerational wealth mobility = 651
4.3. The aggregate importance of inherited versus lifecycle wealth = 653
4.4. Empirical studies of transfer behaviour = 657
5. Summary and conclusions = 663
References = 667
Chapter 12
Redistribution / R. BOADWAY ; M. KEEN = 677
1. Introduction = 679
2. Motives for redistribution = 679
2.1. Redistribution as social justice = 680
2.2. Efficient redistribution = 683
2.3. Redistribution as expropriation = 701
3. The politics of redistribution = 701
3.1. Direct democracy = 701
3.2. Representative democracy = 715
3.3. Interest groups = 721
4. Constraints on redistribution = 732
4.1. First-best redistribution = 733
4.2. Imperfect information as a limit to redistribution = 735
4.3. Restricted instruments : Linear taxes = 743
4.4. Self-selection and nonstandard instruments = 747
4.5. Altering the information assumptions = 750
4.6. Cheats and liars = 751
4.7. Time consistency = 753
4.8. Interjurisdictional mobility = 755
4.9. Altruism and intergenerational redistribution = 757
5. Measuring redistribution = 757
5.1. Methodological issues in assessing redistribution = 758
5.2. Fiscal incidence modelling strategies = 764
5.3. Intertemporal issues = 771
5.4. Explaining redistribution = 776
6. Conclusions = 777
References = 779
Chapter 13
Income Distribution and Development / R. KANBUR = 791
1. Introduction and overview = 792
1.1. Some ground clearing = 792
1.2. Overview = 794
2. Distribution and the process of development = 797
2.1. The theory of development and distribution = 798
2.2. Econometric testing = 804
2.3. The country case study approach = 808
3. Distribution, development and policy = 811
3.1. Policy and the Kuznetsian literature = 811
3.2. Macroeconomic and external sector adjustment = 813
3.3. Redistributive policies : land, education and transfers = 818
4. Beyond national income distributions = 824
4.1. Inter-group distribution = 825
4.2. Intra-household distribution = 828
4.3. Global distribution = 830
5. Conclusion : directions for the the next decade = 832
5.1. Country case studies = 832
5.2. Increasing inequality = 832
5.3. Disaggregation = 833
5.4. Intra-household allocation = 833
5.5. Alternative modes of redistribution = 833
References = 834
Chapter 14
Income Distribution, Economic Systems and Transition / J. FLEMMING ; J. MICKLEWRIGHT = 843
1. Introduction = 844
2. Income distribution in socialist countries = 848
2.1. Labour income in market and socialist economies = 848
2.2. Data sources on income distribution under socialism = 853
2.3. The distribution of earnings in socialist labour markets = 857
2.4. Inequality of household incomes under socialism = 862
2.5. Benefits in kind, subsidies and "fringe" benefits = 871
3. Distribution in transition - theory = 875
3.1. Transitional adjustment and the distribution of earnings = 876
3.2. The scope for mitigating measures = 880
3.3. Wage controls and unemployment = 882
3.4. Reforming delivery of social services and collection of taxes = 882
3.5. Restitution = 883
4. Distribution in transition - evidence = 884
4.1. Data sources in transition = 886
4.2. The distribution of earnings in transition = 890
4.3. Inequality of household incomes in transition = 898
4.4. Interpreting the evidence = 905
5. Conclusions = 909
Appendix A = 911
Appendix B = 912
References = 913
Author index = 919
Subject index = 937
