Economic transition and the distributions of income and wealth

Using a model of wealth distribution dynamics and occupational choice, the author investigates the distributional consequences of policies and developments associated with the transition from central planning to a market system. The model suggests that even an efficient privatization designed to be egalitarian may lead to increases in inequality (and possibly poverty), both during the transition and in the new steady state. Creating new markets in services that are also supplied by the public sector may also contribute to an increase in inequality. So can labor market reforms that lead to a decompression of the earnings structure and to greater flexibility in employment. The results underline the importance of retaining government provision of basic public goods and services, removing barriers that prevent the participation of the poor in the new private sector, and ensuring that suitable safety nets are in place.Environmental Economics&Policies,Economic Theory&Research,Banks&Banking Reform,Fiscal&Monetary Policy,Labor Policies,Banks&Banking Reform,Health Economics&Finance,Economic Theory&Research,Inequality,Environmental Economics&Policies

Distributions in motion: economic growth, inequality, and poverty dynamics

The joint determination of aggregate economic growth and distributional change has been studied empirically from at least three different perspectives. A macroeconomic approach that relies on cross-country data on poverty, inequality, and growth rates has generated some interesting stylized facts about the correlations between these variables, but has not shed much light on the underlying determinants."Meso-"and microeconomic approaches have fared somewhat better. The microeconomic approach, in particular, builds on the observation that growth, changes in poverty, and changes in inequality are simply different aggregations of information on the incidence of economic growth along the income distribution. This paper reviews the evolution of attempts to understand the nature of growth incidence curves, from the statistical decompositions associated with generalizations of the Oaxaca-Blinder method, to more recent efforts to generate"economically consistent"counterfactuals, drawing on structural, reduced-form, and computable general equilibrium models.Rural Poverty Reduction,Achieving Shared Growth,Inequality,Services&Transfers to Poor,Economic Theory&Research

Beyond Oaxaca-Blinder : accounting for differences in household income distributions across countries

The authors develop a microeconometric method to account for differences across distributions of household income. Going beyond the determination of earnings in labor markets, they also estimate statistical models for occupational choice and for conditional distributions of education, fertility, and nonlabor incomes. The authors import combinations of estimated parameters from these models to simulate counterfactual income distributions. This allows them to decompose differences between functionals of two income distributions (such as inequality or poverty measures) into shares because of differences in the structure of labor market returns (price effects), differences in the occupational structure, and differences in the underlying distribution of assets (endowment effects). The authors apply the method to the differences between the Brazilian income distribution and those of Mexico and the United States, and find that most of Brazil's excess income inequality is due to underlying inequalities in the distribution of two key endowments: access to education and to sources of nonlabor income, mainly pensions.Services&Transfers to Poor,Environmental Economics&Policies,Poverty Impact Evaluation,Economic Theory&Research,Health Economics&Finance,Inequality,Economic Theory&Research,Rural Poverty Reduction,Safety Nets and Transfers,Services&Transfers to Poor

Inefficient lobbying, populism and oligarchy

This paper analyses the efficiency consequences of lobbying in a production economy with imperfect commitment. We first show that the Pareto efficiency result found for truthful equilibria of common agency games in static exchange economies no longer holds under these more general conditions. We construct a model of pressure groups where the set of e.cient truthful common-agency equilibria has measure zero. Equilibria are generally inefficient as a direct result of the existence of groups with conflicting interests, which allocate real resources to lobbying. If lobbies representing "the poor " and "the rich " have identical organizational capacities, we show that these equilibria are biased towards the poor, who have a comparative advantage in politics, rather than in production. If the pressure groups di.er in their organizational capacity, both pro-rich (oligarchic) and pro-poor (populist) equilibria may arise, all of which are inefficient with respect to the constrained optimum.

The measurement of inequality of opportunity : theory and an application to Latin America

What part of the inequality observed in a particular country is due to unequal opportunities, rather than to differences in individual efforts or luck? This paper estimates a lower bound for the opportunity share of inequality in labor earnings, household income per capita and household consumption per capita in six Latin American countries. Following John Roemer, the authors associate inequality of opportunity with outcome differences that can be accounted for by morally irrelevant pre-determined circumstances, such as race, gender, place of birth, and family background. Thus defined, unequal opportunities account for between 24 and 50 percent of inequality in consumption expenditure in the sample. Brazil and Central America are more opportunity-unequal than Colombia, Ecuador, or Peru."Opportunity profiles,"which identify the social groups with the most limited opportunity sets, are shown to be distinct from poverty profiles: ethnic origin and the geography of birth are markedly more important as determinants of opportunity deprivation than of outcome poverty, particularly in Brazil, Guatemala, and Peru.Inequality,Rural Poverty Reduction,Access to Finance,Equity and Development,Services&Transfers to Poor

The measurement of educational inequality : achievement and opportunity

This paper proposes two related measures of educational inequality: one for educational achievement and another for educational opportunity. The former is the simple variance (or standard deviation) of test scores. Its selection is informed by consideration of two measurement issues that have typically been overlooked in the literature: the implications of the standardization of test scores for inequality indices, and the possible sample selection biases arising from the Program of International Student Assessment (PISA) sampling frame. The measure of inequality of educational opportunity is given by the share of the variance in test scores that is explained by pre-determined circumstances. Both measures are computed for the 57 countries in which PISA surveys were conducted in 2006. Inequality of opportunity accounts for up to 35 percent of all disparities in educational achievement. It is greater in (most of) continental Europe and Latin America than in Asia, Scandinavia, and North America. It is uncorrelated with average educational achievement and only weakly negatively correlated with per capita gross domestic product. It correlates negatively with the share of spending in primary schooling, and positively with tracking in secondary schools.Teaching and Learning,Secondary Education,Education For All,Poverty Impact Evaluation,Tertiary Education

Inequality of opportunity and economic development

Just as equality of opportunity becomes an increasingly prominent concept in normative economics, the authors argue that it is also a relevant concept for positive models of the links between distribution and aggregate efficiency. Persuasive microeconomic evidence suggests that inequalities in wealth, power, and status have efficiency costs. These variablescapture different aspects of people's opportunity sets, for which observed income may be a poor proxy. One implication is that the cross-country literature on income inequality and growth may have been barking up the wrong tree, and that alternative measures of the relevant distributions are needed. The authors review some of the detailed microeconomic evidence, and then suggest three research areas where further work is needed.Economic Theory&Research,Inequality,ICT Policy and Strategies,Poverty Impact Evaluation,Primary Education

The measurement of educational inequality: Achievement and opportunity

This paper proposes two related measures of educational inequality: one for educational achievement and another for educational opportunity. The former is the simple variance (or standard deviation) of test scores. Its selection is informed by consideration of two measurement issues that have typically been overlooked in the literature: the implications of the standardization of test scores for inequality indices, and the possible sample selection biases arising from the Program of International Student Assessment (PISA) sampling frame. The measure of inequality of educational opportunity is given by the share of the variance in test scores that is explained by pre-determined circumstances. Both measures are computed for the 57 countries in which PISA surveys were conducted in 2006. Inequality of opportunity accounts for up to 35 percent of all disparities in educational achievement. It is greater in (most of) continental Europe and Latin America than in Asia, Scandinavia, and North America. It is uncorrelated with average educational achievement and only weakly negatively correlated with per capita gross domestic product. It correlates negatively with the share of spending in primary schooling, and positively with tracking in secondary schools.Educational inequality, educational achievement, inequality of opportunity.

Aggregate economic shocks, child schooling and child health

Do aggregate economic shocks, such as those caused by macroeconomic crises or droughts, reduce child human capital? The answer to this question has important implications for public policy. If shocks reduce investments in children, they may transmit poverty from onegeneration to the next. This paper uses a simple framework to analyze the effects of aggregate economic shocks on child schooling and health. It shows that the expected effects are ambiguous, because of a tension between income and substitution effects. The paper then reviews the recent empirical literature on the subject. In richer countries, like the United States, child health and education outcomes are counter-cyclical: they improve during recessions. In poorer countries, mostly in Africa and low-income Asia, the outcomes are pro-cyclical: infant mortality rises, and school enrollment and nutrition fall during recessions. In the middle-income countries of Latin America, the picture is more nuanced: health outcomes are generally pro-cyclical, and education outcomes counter-cyclical. Each of these findings is consistent with the simple conceptual framework. The paper discusses possible implications for expenditure allocation.Health Monitoring&Evaluation,Population Policies,Economic Theory&Research,Health Systems Development&Reform,Labor Policies

Beyond Oaxaca-Blinder: Accounting for Differences in Household Income Distributions Across Countries

This paper develops a micro-econometric method to account for differences across distributions of household income. Going beyond the determination of earnings in labor markets, we also estimate statistical models for occupational choice and for the conditional distributions of education, fertility and non-labor incomes. We import combinations of estimated parameters from these models to simulate counterfactual income distributions. This allows us to decompose differences between functionals of two income distributions (such as inequality or poverty measures) into shares due to differences in the structure of labor market returns (price effects); differences in the occupational structure; and differences in the underlying distribution of assets (endowment effects). We apply the method to the differences between the Brazilian income distribution and those of the United States and Mexico, and find that most of Brazil's excess income inequality is due to underlying inequalities in the distribution of two key endowments: access to education and to sources of non-labor income, mainly pensions.http://deepblue.lib.umich.edu/bitstream/2027.42/39863/3/wp478.pd