Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/300187 
Year of Publication: 
2024
Series/Report no.: 
GUT FME Working Paper Series A No. 1/2024 (72)
Publisher: 
Gdansk University of Technology, Faculty of Management and Economics, Gdansk
Abstract: 
Research background: Applied welfare economics offers various social welfare functions (SWF) for appraising income distributions. Social planners commonly use two SWFs: SWFε implied by income inequality aversion (ε) and SWFv implied by rank inequality aversion (v). However, a voluntary choice of ε or v may result in inconsistent assessments of social welfare embodied in a given income distribution. Purpose of the article: We search for the combinations of ε and v that guarantee consistent assessments of social welfare, inequality and poverty embodied in a given income distribution. Methods: We propose estimating the pairs (ε,v) by solving the system of two nonlinear equations. The first equation comprises the equally distributed equivalent incomes derived from SWFε and SWFv . The second equation comprises the benchmark incomes. A small increase in income below the benchmark income reduces inequality, whereas a small increase above the benchmark income increases inequality. The system of these equations can be solved numerically. Findings and Value added: We have estimated ε, v, and related characteristics for selected Latin America and Caribbean countries using Luxembourg Income study database data.
Subjects: 
social welfare
Atkinson Index
Generalised Gini Index
inequality
poverty
JEL: 
C10
D30
D60
I30
O15
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper

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