Working Paper: CEPR ID: DP12989
Authors: Paul Hufe; Ravi Kanbur; Andreas Peichl
Abstract: Rising income inequalities are widely debated in public and academic discourse. In thispaper, we contribute to this debate by proposing a new family of measures of unfair inequality.To do so, we acknowledge that inequality is not bad per se, but that its underlying sourcesneed to be taken into account. Thereby, this paper is the first to reconcile two prominentfairness principles, namely equality of opportunity and freedom from poverty, into a jointmeasure of unfair inequality. Two empirical applications provide important new insights onthe development of unfair inequality both over time (in the US) and across countries (in Europe).First, unfair inequality shows different time trends and country rankings compared tototal inequality. Second, average unfair inequality doubles when complementing the ideal ofan equal opportunity society with poverty aversion. Furthermore, we show that an exclusivefocus on top incomes may misguide fairness judgments.
Keywords: inequality; equality of opportunity; poverty; fairness; measurement
JEL Codes: D31; D63; I32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| unfair inequality (D63) | equality of opportunity (EOP) (I24) |
| unfair inequality (D63) | freedom from poverty (FFP) (I32) |
| equality of opportunity (EOP) + freedom from poverty (FFP) (I24) | unfair inequality (D63) |
| top incomes (D31) | unfair inequality (D63) |