Ethical Indices of Inequality

Abstract

While the Lorenz criterion provides only a quasi-ordering of income profiles, an alternative statistic that completely orders the set of all income profiles is an inequality index. An inequality index is a scalar representation of interpersonal income differences within a given population. Quite often indices of inequality are used in the public finance and development studies to evaluate a paricular profile of income or to examine the distributional effects of a particular economic policy. The standard questions that arise in these studies are: (i) Is the income profile in region A more equal now than it was in the past? (ii) Is income inequality in region B less than that in region C? (iii) Is post-tax income profile more equal than the pre-tax income profile? (iv) What are the contributions of different income sources to the aggregate inequality in region A?