Handbook of Income Distribution

2271 Pages·2015·42.545 MB·English

by  Anthony B. Atkinson and François Bourguignon (Eds.)

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Kenneth J. Arrow and Michael D. Intriligator
Handbook of
INCOME
DISTRIBUTION
Volume 2A
First edition
Edited by
ANTHONY B. ATKINSON
Nuffield College, Oxford, UK
FRANÇOIS BOURGUIGNON
ParisSchoolof Economics, Paris, France
North-Holland is an imprint of Elsevier
Handbook of
INCOME
DISTRIBUTION
Volume 2B
First edition
Edited by
ANTHONY B. ATKINSON
Nuffield College, Oxford, UK
FRANÇOIS BOURGUIGNON
ParisSchoolof Economics, Paris, France
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CONTRIBUTORS
Rolf Aaberge
Statistics Norway, ResearchDepartmentand University of Oslo,Department of Economics,
ESOP, Oslo, Norway
Daron Acemoglu
Massachusetts Institute of Technology,Cambridge, MA, USA
Facundo Alvaredo
EMod/OMI-Oxford University,Paris School of Economics, and CONICET, Oxford, UK
Sudhir Anand
Departmentof Economics, Universityof Oxford,Oxford,UK; and Department of Global
Health and Population,Harvard School of Public Health,Boston, MA, USA
Andrea Brandolini
Bank of Italy, Directorate Generalfor Economics, Statistics, and Research,Rome, Italy
Daniele Checchi
Departmentof Economics, Universityof Milan, Milano, Italy and IZA, Bonn, Germany
Pierre-Andre´ Chiappori
Departmentof Economics, Columbia University, NY, USA
Andrew E.Clark
Paris School of Economics—CNRS,Paris,France
Frank A. Cowell
STICERD,London Schoolof Economics, London,UK
ConchitaD’Ambrosio
INSIDE,Universite´ du Luxembourg, Walferdange, Luxembourg
Koen Decancq
Centre for Social Policy Herman Deleeck, Universityof Antwerp, Antwerp; Department of
Economics, Katholieke Universiteit Leuven,Leuven, and CORE, Universite´ catholique de
Louvain, Louvain-la-Neuve, Belgium
Jean-Yves Duclos
(cid:1)
IZA,De´partementd’e´conomique and CIRPEE,Universite´ Laval,Quebec, QC,Canada
FrancescoFigari
Universityof Insubria,Varese, Italy, and Institute for Social and Economic Research (ISER),
Universityof Essex,Colchester, UK
Emmanuel Flachaire
Aix-Marseille Universite´, AMSE &IUF, Marseille, France
Marc Fleurbaey
Princeton University,Princeton, NJ, USA
xiii
xiv Contributors
MichaelF.Fo€rster
OECD, Paris, France
Leonardo Gasparini
CEDLAS-FCE-UniversidadNacional de LaPlata, and CONICET, LaPlata, Argentina
Istva´n Gyo€rgy To´th
Ta´rkiSocialResearchInstitute, Budapest, Hungary
Markus Ja¨ntti
Swedish Institute for SocialResearch (SOFI),Stockholm University, Stockholm, Sweden
Stephen P. Jenkins
DepartmentofSocialPolicy,LondonSchoolofEconomics,London;ISER,UniversityofEssex,
Colchester, UK,and IZA, Bonn, Bonn, Germany
Ravi Kanbur
Cornell University,Ithaca,NY, USA
Ive Marx
HermanDeleeckCentreforSocialPolicy,UniversityofAntwerp,Antwerp,andInstituteforthe
Studyof Labor,IZA,Bonn,Germany
CostasMeghir
Department of Economics,Yale University,New Haven, CT, USA
Dominique Meurs
University Paris Ouest Nanterre, EconomiX and Ined, France
Salvatore Morelli
CSEF,UniversityofNaples,FedericoII,Naples,Italy,andINETOxford,UniversityofOxford,
Oxford,UK
Suresh Naidu
Columbia University,NY,USA
BrianNolan
DepartmentofSocialPolicyandInterventionandInstituteforNewEconomicThinkingatthe
OxfordMartin School, University of Oxford, UK
OwenO’Donnell
ErasmusSchool of Economics &Tinbergen Institute,Erasmus UniversityRotterdam,
Rotterdam, TheNetherlands, and School of Economics and Area Studies, University of
Macedonia, Thessaloniki, Greece
JavierOlivera
InstituteforResearchonSocio-EconomicInequality,RUINSIDE,UniversityofLuxembourg,
Luxembourg, Luxembourg
AlariPaulus
Institute for Social and Economic Research(ISER), Universityof Essex, Colchester, UK
Thomas Piketty
ParisSchool of Economics, Paris, France
Contributors xv
Sophie Ponthieux
Institut national de lastatistique et des e´tudes e´conomiques, France
Vincenzo Quadrini
Universityof Southern California, CEPR, Los Angeles,CA, USA
Martin Ravallion
Departmentof Economics, Georgetown University,Washington,DC, USA
Pascual Restrepo
Massachusetts Institute of Technology,Cambridge, MA, USA
Jose´-V´ıctor R´ıos-Rull
Universityof Minnesota, Federal Reserve Bank of Minneapolis, CAERP, CEPR, NBER,
Minneapolis,MN, USA
James A. Robinson
Harvard University,Cambridge, MA, USA
John E.Roemer
Yale University,NewHaven,CT, USA
Jesper Roine
Stockholm Institute of TransitionEconomics, Stockholm School of Economics,Stockholm,
Sweden
Wiemer Salverda
AmsterdamInstituteforAdvancedLabourStudies(AIAS),andAmsterdamCentreforInequality
Studies (AMCIS),University of Amsterdam, Amsterdam, TheNetherlands
Agnar Sandmo
Departmentof Economics, Norwegian School of Economics(NHH), Bergen, Norway
Erik Schokkaert
Departmentof Economics, Katholieke Universiteit Leuven, Leuven, and CORE, Universite´
catholique de Louvain, Louvain-la-Neuve, Belgium
Paul Segal
King’s International DevelopmentInstitute, King’s College London, London,UK
Timothy Smeeding
Universityof Wisconsin, Madison, WI, USA
Holly Sutherland
Institute forSocial and Economic Research(ISER), University of Essex, Colchester, UK
Andre´-Marie Taptue´
(cid:1)
De´partement d’e´conomique and CIRPEE, Universite´ Laval, Quebec, QC, Canada
Jeffrey Thompson
Federal Reserve Board of Governors,Washington, DC,USA
Alain Trannoy
Aix-Marseille University,EHESS and CNRS,France
xvi Contributors
EddyVan Doorslaer
ErasmusSchool of Economics, TinbergenInstitute&Institutefor HealthPolicy and
Management, Erasmus University Rotterdam, Rotterdam, The Netherlands
TomVanOurti
ErasmusSchool of Economics &Tinbergen Institute,Erasmus UniversityRotterdam,
Rotterdam, TheNetherlands
Daniel Waldenstro€m
Department of Economics,Uppsala University, Uppsala, Sweden
Gabriel Zucman
London Schoolof Economics, London,UK
INTRODUCTION: INCOME DISTRIBUTION TODAY
Anthony B. Atkinson*, François Bourguignon†
*NuffieldCollege,Oxford,UK
†ParisSchoolofEconomics,Paris,France
1. SETTING THE SCENE
When the first volume of the Handbook of Income Distribution was published in 2000,
thesubjectofincomeinequalitywasnotinthemainstreamofeconomicdebate—despite
the long history of engagement with this issue by earlier leading economists—see
Chapter 1 by Agnar Sandmo. Fifteen years later, inequality has become very much
centrestage.RisingincomeinequalityhasattractedtheattentionoftheU.S.President,
ofinternationalbodiessuchastheIMFandtheOECD,andofparticipantsintheDavos
meeting.
ThisvolumeoftheHandbookaimstocovertheadvancesmadeinthepast15yearsin
ourunderstandingoftheextent,causes,andconsequencesofinequality.Inthisrespect,
thesecondvolumeshouldbeseenascomplementing,notsupplanting,thefirstvolume.
Wehaveencouragedauthorstoconcentrateonthedevelopmentsthathavetakenplace
since2000,andthechaptersshouldbereadinconjunctionwiththoseinvolumeI.Inthis
Introduction,wegiveaflavoroftheissuesdiscussedandsomepersonalreflectionsonthe
state of the subject.
InourIntroductiontovolumeIoftheHandbook,wesaidthat“incomedistribution
may be considered the normative economic issue ‘par excellence’” (Atkinson and
Bourguignon, 2000, p. 41). People are concerned about economic inequality because
theyfeelittobesociallyunjustorunfair.Itviolatesprinciplesofsocialjustice.Thenature
oftheseprinciplesisofcoursemuchdebatedandthereisdisagreementaboutwhatcon-
stitutesanunacceptablelevelofinequality.Peoplefocusondifferentdimensions.Butthe
concern is with inequality intrinsically. At the same time, there is a second set of—
instrumental—concernswiththeconsequencesofinequality.Thesocietalconsequences
werehighlightedbyJosephStiglitzwhenheentitledhis2012book,Thepriceofinequality,
where he says “the impact of inequality on societies is now increasingly well
understood—higher crime, health problems, and mental illness, lower educational
achievements, social cohesion and life expectancy” (inside cover). The social, political
and cultural impacts of inequality have been the subject of the GINI (Growing
xvii
xviii Introduction:IncomeDistributionToday
Inequalities’ Impacts) research project (Salverda et al., 2014; Nolan et al., 2014). In the
second volume of the Handbook, some of these consequences feature, notably those
regarding health in Chapter 17 by Owen O’Donnell, Eddy Van Doorslaer, and Tom
Van Ourti. But the wider societal impact of inequality is not the principal focus of
thechaptersthatfollow.Thisstillleavesmuchtobediscussed.Inequalityisofinstrumen-
talimportancewithinthefieldofeconomicsitself.AswesaidinvolumeI,“incomedis-
tributionassistsourunderstandingofvariousfieldsofeconomics”(2000,p.4).Now,as
then,webelievethatthestudyofeconomicinequalityshouldbeattheheartofeconomic
analysis.
Uponreflectingtheissuescoveredinthisvolume,thisIntroductionconsiderssucces-
sively:(a)theconceptsandapproachestoeconomicinequalitymeasurement,orthevar-
ious facets of inequality (Section 2); (b) the care needed with data on inequality
(Section3);(c)theexplanationsofchangesinvariousdimensionsofeconomicinequality,
mostnotablythedistributionofincome,earningsandwealthandthelinkswithmacro-
economics(Section4);and(d)thepoliciesavailabletoinfluencethosechangesortocor-
rect those distributions (Section 5).
WeplungestraightintothesubjectmatterwithFigure1,whichdepictstheevolution
of economic inequality in the United States over the past century. The data are taken
fromtheChartbookofEconomicInequality(AtkinsonandMorelli,2014),1butarepre-
sented in four panels to highlight different dimensions of the distribution of income.2
The pictures provide a good basis for describing what is covered in this Handbook
and for identifying some of the issues that are missing. The fact that most of the lines
in the different panels are rising to the right is the main reason why inequality is on
theagenda.Atthesametime,thelongrunofhistoricaldataoninequalityshowsusthat
therehavebeenperiodsinthepastwheninequalityfellandwhenpovertywasreduced.
Indeed the past 100 years has seen a broadly U-shaped pattern. The series shown in
Figure1alsoallowustounderlineattheoutsetthecrucial,andoftenoverlooked,point
that observed differences in income are not necessarily an indicator of the existence of
inequality. Earnings at the top decile (shown in Panel C), for example, may have risen
on account of increased costs of acquiring educational qualifications, and not represent
anyriseininequalityoflifetimeincomes.Forthisreason,itisimportanttoaskwhatwe
mean by “inequality.”
1 Analternativecoloredgraphcanbefoundhere:http://www.chartbookofeconomicinequality.com/wp-
content/uploads/StaticGraphs/USA_staticgraph_coloured.pdf.
2 WearefollowingheretheadviceofSchwabish(2014)toavoid“spaghetti”charts.