Econometrica: Jan 1983, Volume 51, Issue 1

An Index of Inequality: With Applications to Horizontal Equity and Social Mobility

https://doi.org/0012-9682(198301)51:1<99:AIOIWA>2.0.CO;2-N
p. 99-116

Mervyn A. King

Horizontal equity and social mobility are discussed in terms of a non-utilitarian social welfare function which takes account of the process by which an ex ante distribution is mapped into an ex post distribution (by the tax system, for example). An index of inequality is proposed which decomposes into two components, corresponding to vertical and horizontal equity respectively. A functional form for the social welfare function is derived for the purposes of empirical work, and an application to data for 5895 UK households is presented. The paper contains a theoretical application of the index to a model of optimal taxation.

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