Theil, Inequality and the Structure of Income Distribution

This paper documents the impact of Argentina's recent economic crises on different aspects of poverty, with a special focus on the economic collapse of 2002. We discuss the methodology of poverty measurement in Argentina and we use a simple rule to compensate for the lack of regional poverty figures until 2001, providing consistent series of urban poverty estimates at the national and regional levels. We then present series of short term dynamics of poverty, decomposing the changes in every period of time with panel data. Finally, we analyse the determinants of poverty, with a focus on accounting for observed differences in income (and thereby poverty) between October 2001 and May 2002. Among other conclusions, we find in our decomposition analysis that households without the means to diversify their income sources suffered more than others from the crisis of 2002.Theil, inequality, independence, homotheticity, translatability.

Income Distribution and Inequality

What are the principal issues on which research on income distributionand inequality focus? How might that focus shift in the immediate future?Prepared for the The Elgar Handbook of Socio-Economics.

Sticks and Carrots

The tax-payer-as-gambler (TAG) model of tax non-compliance is the classic vehicle for providing some simple insights. Under fairly general conditions this model supports the following four propositions: (1) if the rate of return to evasion is positive everyone evades tax; (2) people with higher risk-aversion tend to evade less; (3) people with higher personal income tend to evade more; (4) increasing any of the standard tax-enforcement parameters (the probability of audit, the proportional surcharge on evaded tax and the tax rate) will reduce the amount of concealed income. Not all of these TAG model predictions seem intuitively reasonable, nor are they all borne out by empirical evidence.There are three principal intellectual routes for a more satisfactory approach:(a)A re-examination of the underlying model of taxpayer motivation. This encompasses relaxation of the expected-utility assumption, introduction of time into the modeling framework and an extension of the range of arguments of the utility function.(b)A revision of the model of interaction between the taxpayer and the tax authority. This allows the introduction of an explicit strategic interaction encapsulated in the auditing relationship. Neither the models with precommitment or those without precommitment fully capture the relevant features of the noncompliance problem. Both neglect the problem of "ghosts".(c)The role of the modeling of firms. This route is relatively neglected in the theoretical and empirical literature. An elementary treatment of the problem suggests that it has potential as an exploratory tool and as a guide to policy makers.Compliance, tax evasion, risk-taking, enforcement.

Measurement of Inequality (published in Handbook of Income Distribution, A B Atkinson and F Bourguignon (eds), 1998)

The analysis of inequality is placed in the context of recent developments in economics and statistics. Prepated for Handbook of Income Distribution, edited by A B Atkinson and F Bourguignon.Inequality, social welfare, income distribution

Inequality among the Wealthy

Using the evidence from the Luxembourg Wealth Study it appears that the distribution of wealth in the UK is considerably less than in Canada, the US or Sweden. But does this result come from an underestimate of inequality among the wealthy and of the wealth differential between the rich and the rest? Using a Pareto model for the upper tail of the distribution we can see that the inequality of comparisons of the UK with the other countries is indeed robust.wealth distribution

Inequality: Measurement

This article provides a brief overview of the key issues in inequality measurement andhas been prepared for inclusion in the second edition of The New Palgrave.inequality, social welfare, ranking.

Measuring Income Mobility with Dirty Data (published in Ethnic and Racial Studies, 22(3), May 1999)

We examine the performance of measures of mobility when allowance is made for the possibility of data contamination. We find that 'single-stage' indices - those that are applied directly to a sample from a multivariate income distribution - usually prove to be non-robust in the face of contamination. However, 'two-stage' models of mobility - where the distribution is first 'discretised' into income intervals and then a transition matrix or other tool is applied - may be robust if the first stage is appropriately specified.Mobility measures, robustness, data contamination

Vulnerable Households and Variable Incomes

In this paper we examine the concept of "vulnerability" within the context of incomemobility of the poor. We test for the dynamics of vulnerable households in the UKusing Waves 1 - 12 of the British Household Panel Study and find that, of threedifferent types of risks that we test for, household-specific shocks and economy-wideaggregate shocks have the greatest impact on consumption, in comparison to shocksto the income stream.

Income distribution and inequality measurement: The problem of extreme values

We examine the statistical performance of inequality indices in the presence of extreme values in the data and show that these indices are very sensitive to the properties of the income distribution. Estimation and inference can be dramatically affected, especially when the tail of the income distribution is heavy, even when standard bootstrap methods are employed. However, use of appropriate semiparametric methods for modelling the upper tail can greatly improve the performance of even those inequality indices that are normally considered particularly sensitive to extreme values.inequality measures ; statistical performance ; robustness

Tax Compliance by Firms and Audit Policy

Firms are usually better informed than tax authorities about market conditions and the potential profits of competitors. They may try to exploit this situation by underreporting their own taxable profits. The tax authority could offset firms' informational advantage by adopting "smarter" audit policies .that take into account the relationship between a firm's reported profits and reports for the industry as a whole. Such an audit policy will create an externality for the decision makers in the industry and this externality can be expected to affect not only firms' reporting policies but also their market decisions. If public policy takes into account wider economic issues than just revenue raising what is the appropriate way for a tax authority to run such an audit policy? We develop some clear policy rules in a standard model of an industry and show the effect of these rules using simulations.ca3Tax compliance, evasion, oligopoly