Income redistribution going awry: The reversal power of the concern for relative deprivation

We demonstrate that a rank-preserving transfer from a richer individual to a poorer individual can exacerbate income inequality (when inequality is measured by the Gini coefficient). This happens when individuals’ preferences depend negatively not only on work time (effort) but also on low relative income. It is rigorously shown that the set of preference profiles that gives rise to this perverse effect of a transfer on inequality is a non-empty open subset of all preference profiles. A robust example illustrates this result.


Issue Date:
2012-12
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/142407
Total Pages:
17
JEL Codes:
D30; D31; D63
Series Statement:
ZEF- Discussion Papers on Development Policy
No. 173




 Record created 2017-04-01, last modified 2017-04-26

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