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Social Choice and Welfare

, Volume 44, Issue 2, pp 217–230 | Cite as

Inequality in current and lifetime income

  • Rolf Aaberge
  • Magne Mogstad
Article
  • 498 Downloads

Abstract

To gauge inequality in living standards, the distribution of lifetime income is likely to be more relevant than the distribution of current income. Yet, empirical studies of income inequality are typically based on observations of income for one or a few years. In this paper, we exploit a unique data set with nearly career-long income histories to assess the role of so-called life-cycle bias in empirical analysis of income inequality that uses current income variables as proxies for lifetime income. We find evidence of substantial life-cycle bias in estimates of inequality based on current income. One implication is that cross-sectional estimates of income inequality are likely to be sensitive to the age composition of the sample. A decomposition of the life-cycle bias into income mobility and heterogeneous profiles reveal the importance of two explanations that have been put forth to explain the disagreement between current and lifetime inequality.

Keywords

Income Inequality Gini Coefficient Lorenz Curve Inequality Measure Current Income 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Notes

Acknowledgments

We thank two anonymous referees, the editor and Anders Björklund for helpful comments.

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Copyright information

© Springer-Verlag Berlin Heidelberg 2014

Authors and Affiliations

  1. 1.Research Department, Statistics Norway & ESOPUniversity of OsloOsloNorway
  2. 2.University of Chicago & Statistics NorwayChicagoUSA

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