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1. Income Distribution (Econ 473)

Emmanuel Flachaire.  

Announcements:

Please download the syllabus and read it. (updated: 11th Feb)

Course description and objectives:

Income inequality has been a topic of long-standing interest to economist. Its importance to society is hard to overstate. Recent increases in income inequality in many developed countries have heightened this interest. The purpose of this course is to develop a theoretical understanding of the distribution of income, consumption and wealth; to build on this to develop methods of measuring inequality, poverty, life-time and intergenerational mobility, well-being and quality of life; to translate these tools into empirical analysis of various countries and to analyze potential determinants of changes in income distribution and mobility. 


Contents:

The course is decomposed into the following chapters: 

Chapter 1. Introduction     (slides1)

  • Illustrative examples
    • Wealth Distribution: Perception vs. Reality
    • Long-run Changes in Economic Inequality
    • Capital in the 21st century
  • Goal of the course
  • Outline of the course

Chapter 2. Income, Wealth and Data    (slides2)           

"Wealth inequality may be a bigger problem in the U.S. than income inequality" (St. Louis Fed, 2014: link)

  • Income and Wealth
    • Components of income
    • Difference between income and wealth
    • What is capital?
  • Interpersonal and International Comparisons
    • Equivalent scales
    • Income tax and disposable income
    • Purchasing Power Parity
  • Data
    • Survey and administrative data
    • Datasets

Chapter 3. Density Function     (slides3)

"Density estimates can give valuable indication of the properties of a given set of data" (Silverman, 1998, p.2)

  • Usual parametric distributions
    • Lognormal and Pareto
    • Singh-Maddala, Dagum and others
  • Nonparametric estimation
    • Standard and adaptive kernel
    • Preliminary transformation of the data
  • Finite-mixture estimation
    • A group-decomposition approach
    • Going beyond density estimation
  • Applications
    • The world distribution of income
    • Income dynamics across EU regions
  • Implementation in R

Chapter 4. Inequality     (slides4)

"The problem of inequality in its purest form: dividing a cake of fixed size amongst a fixed number of people" (Amiel and Cowell, 1999, p.7)

    • Introduction
      • What is inequality?
      • Charting inequality
    • Measurement
      • Statistical approach
      • Axiomatic approach
      • Social-welfare approach
    • Inequality comparisons
      • Lorenz dominance
      • Inference
    • Applications
      • Global inequality
      • Inequality and Growth
    • Implementation in R

    Chapter 5. Poverty     (slides5)

    "1 billion people in the world live on less than $1 a day" (Chen and Ravallion 2007)

    • Introduction
    • Defining poverty
      • National poverty lines
      • International comparisons
    • Measuring poverty
      • Incidence, depth and severity of poverty
      • Axiomatic approach
      • Robustness to a change in the poverty line
    • Applications
      • The developing world is poorer than we thought
      • A radical rethinking of the way to fight global poverty
    • Implementation in R

    Chapter 6. The Wealthy      (slides6)        

    "Top incomes represent a small share of the population but a very significant share of total income and total taxes paid." (Atkinson, Piketty, Saez, 2011, p.3)

    • Why studying the top incomes?
    • Measurement
      • Why not adapting poverty indices?
      • Top income share
      • Inverted Pareto coefficient
    • Applications
      • Top incomes in the long run of history
      • Wealth inequality in the United States
    • Implementation in R

    Chapter 7. Mobility      (slides7)

    "Greater mobility is often mentioned as a reason to believe that increasing inequality is not that important." (Piketty, 2014, p.299)

    • Introduction
      • Equality of opportunity
      • The "Great Gatsby Curve"
    • Measurement
      • Elasticity and correlation coefficients
      • Axiomatic approach
      • Transition matrix
    • Applications
      • Mobility in China
      • Is America the "Land of Opportunity"?
    • Implementation in R

    Chapter 8. Well-being and quality of life       

    "Perhaps had there been more awareness of the limitations of standard metrics, like GDP, there would have been less euphoria over economic performance in the years prior to the crisis." (Stiglitz, Sen and Fitoussi 2009, p.9)

    • Introduction
      • Would you be happier if you were richer?
      • The Stiglitz-Sen-Fitoussi report
    • Measurement
      • Ordinal vs. cardinal data
      • Multidimensional indices
    • Applications
      • Human Development index (HDI)
      • OECD Better Life index


    References:

    Chapter 1: Introduction

    Atkinson and Bourguignon (2015), Income distribution today: An introduction, in Handbook of Income Distribution, vol 2A.
    Atkinson and Morelly (2014), Chartbook of economic inequality, ECINEQ working paper, and the interactive website http://www.chartbookofeconomicinequality.com
    Facundo, Atkinson, Piketty and Saez (2014), The World Top Incomes Database, http://topincomes.g-mond.parisschoolofeconomics.eu 
    Norton and Ariely (2011), Building a better America - One wealth quintile at a time, Perspectives on Psychological Science, vol.6 (pdf). See also the movie, the article in The Atlantic magazine and Ariely's website
    Piketty (2014), Capital in the Twenty-First Century, Harvard University Press. See also the video and related links at the book's website

    Chapter 2: Income, wealth and data

    Atkinson (2007), Measuring top incomes: Methodological issues, in Top Incomes over the Twentieth Century, Atkinson and Piketty (eds), Vol. 1, ch. 2, Oxford University Press. (pdf)
    Atkinson, Piketty and Saez (2011), Top Incomes in the long run of history, Journal of Economic Literature, 49(1), 3-71. (pdf)
    Cowell (2000), Measurement of inequality, in Handbook of Income Distribution, vol 1, ch.2. (pdf)
    Khanacademy: see the video tutorials on National Income and Inequality. (link)
    Landais, Piketty and Saez (2011), Pour une révolution Fiscale, Paris: Ed. du Seuil. (pdf and website)
    Piketty (2008), L'Economie des Inégalités, Paris: Ed. la Découverte. (link)
    Piketty (2014), Capital in the Twenty-First Century, Harvard University Press.

    Wolff (2010), Recent trends in household wealth in the United States: Rising debt and the middle-class squeeze - an update to 2007. (pdf)

    Chapter 3: Density function

    Ahamada and Flachaire (2011), Nonparametric Econometrics, Oxford University Press. (link)
    Bourguignon and Morrisson (2002), Inequality among world citizens: 1820-1992, American Economic Review, 92. (pdf)
    Cowell and Flachaire (2015), Statistical methods for distributional analysis, in Handbook of Income Distribution, vol 2A, ch.6. (pdf)
    Charpentier and Flachaire (2014), Log-transform kernel density estimation of income distributions, working paper. (pdf)
    Kleiber and Kotz (2003), Statistical Size Distributions in Economics and Actuarial Sciences, Wiley. (link)

    Pittau and Zelli (2006), Empirical evidence of income dynamics across EU regions, Journal of Applied Econometrics, 21. (pdf)

    Sala-i-Martin (2006), The world distribution of income: falling poverty and ... convergence, period, Quarterly Journal of Economics, CXXI. (pdf)

    Chapter 4: Inequality

    Amiel and Cowell (1999), Thinking about Inequality, Cambridge Universty Press. (link)
    Barro (2000), Inequality and growth in a panel of countries, Journal of Economic Growth, 5(1), 5-32. (pdf)
    Cowell (2000), Measurement of inequality, in Handbook of Income Distribution, vol 1, ch.2. (pdf)
    Cowell (2011), Measuring Inequality, (3rd edition) Oxford University Press. (pdf)
    Cowell and Flachaire (2015), Statistical methods for distributional analysis, in Handbook of Income Distribution, vol 2A, ch.6. (pdf)
    Cowell, Flachaire and Bandyopadhyay (2013), Reference distributions and inequality measurement, Journal of Economic Inequality11(4), 421-437. (pdf)
    Galbraith (2009), Inequality, unemployment and growth: new measures for old controversies. Journal of Economic Inequality 7:189–206. (pdf)
    Kuznets (1955), Economic growth and income inequality, American Economic Review, XLV(1), 1-30. (pdf)
    Ortiz and Cummins (2011), Global inequality: Beyond the bottom billion, UNICEF Policy and Practice, working paper. (pdf

    Chapter 5: Poverty

    Banerjee and Duflo (2007), The economic lives of the poor, Journal of Economic Perspectives, 21(1), 141-16. (pdf)
    Banerjee and Duflo (2011), Poor economics: A Radical Rethinking of the Way to Fight Global Poverty(book and J-Pal websites)
    Chen and Ravallion (2010), The developing world is poorer than we thought, but no less successful in the fight against poverty, Quarterly Journal of Economics, 125(4), 1577-1625. (pdf)
    Foster, Seth, Lokshin and Sajaia (2013), A Unified Approach to Measuring Poverty and Inequality: Theory and Practice, The World Bank. (pdf)
    Gertler, Martinez, Premand, Rawlings and Vermeersch (2011), Impact Evaluation in Practice, The World Bank. (pdf)

    Glennerster and Takavarasha (2013), Running Randomized Evaluations: A Practical Guide, Princeton University Press. (link)

    Haughton and Khandker (2009), Handbook on Poverty and Inequality, The World Bank. (pdf and link
    Ravallion, Chen and Sangraula (2009), Dollar a day revisited, The World Bank Economic Review. (pdf)
    Ravallion, Datt and van de Walle (1991), Quantifying absolute poverty in the developing world, Review of Income and Wealth. (pdf)
    UNICEF (2007), Child Poverty in Perspective: An Overview of Child Well-being in Rich Countries, UNICEF Innocenti Research Center. (pdf)
    Wolff (2009), Poverty and Income Distribution, Wiley-Blackwell. (link)
    World Bank (2001), World Development Report 2000/2001: Attacking Poverty. Oxford University Press. (pdf)
    World Bank (2013), The World Bank Goals: End Extreme Poverty and Promote Shared Prosperity. (pdf)

    Chapter 6: The wealthy

    Atkinson and Piketty (2007), Top Incomes over the Twentieth Century: A Contrast between Continental European and English-Speaking Countries (Volume 1), Oxford University Press. (pdf)
    Atkinson and Piketty (2010), Top Incomes over the Twentieth Century: A Global Perspective (Volume 2), Oxford University Press. (link)
    Atkinson (2005), Top Incomes in the UK over the 20th Century, Journal of the Royal Statistical Society: Series A, 168(2). (pdf)
    Atkinson, Piketty and Saez (2011), Top Incomes in the long run of history, Journal of Economic Literature, 49(1). (pdf)
    Piketty and Saez (2003), Income inequality in the United States, 1913-1998Quarterly Journal of Economics, 118(1). (pdf)
    Piketty and Zucman (2014), Capital is back: Wealth-income ratios in rich countries 1700-2010Quarterly Journal of Economics, 129(3). (pdf)
    Saez and Veall (2005), The Evolution of High Incomes in Northern America: Lessons from Canadian Evidence, American Economic Review, 15(3). (pdf)
    Saez and Zucman (2014), Wealth inequality in the United States since 1913: Evidence from capitalized income taxNBER  20625 (pdf) and the summary for a broader public.
    Veall (2012), Top income shares in Canada: Recent trends and policy implications, Canadian Journal of Economics, 45(4), 1247-1272 (pdf)

    Chapter 7: Mobility

    Chen and Cowell (2013), Mobility in China. Public Economics Programme Discussion Paper, 18, Sticerd, LSE. (pdf)
    Chetty, Hendren, Kline and Saez (2014), Where is the land of opportunity? The geography of intergenerational mobility in the United States, Quarterly Journal of Economics. (pdf and website).
    Chetty, Hendren, Kline and Saez (2014), Is the United States still a land of opportunity? Recent trends in intergenerational mobility, American Economic Review: P&P. (pdf)
    Corak (2013), Income Inequality, Equality of Opportunity, and Intergenerational Mobility, Journal of Economic Perspective, 27(3). (pdf)
    Cowell and Flachaire (2014), Measuring mobility, working paper. (pdf)
    Durlauf and Shaorshadze (2014), Intergenerational Mobility, in Emerging Trends in the Social and Behavioral Sciences, Scott and Kosslyn, eds. Sage Publishing, forthcoming. (pdf)

    Fields and Ok (1999), The measurement of income mobility: an introduction to the literature, in Handbook of Income Inequality Measurement, ch.19. (pdf)

    Jantti and Jenkins (2015), Income Mobility, in Handbook of Income Distribution, vol 2A, ch.10. (pdf)

    Krueger (2012)The Rise and Consequences of Inequality in the United States, speech at the Center for American Progress, Washington D.C. on January 12, 2012. (speech and slides)
    Roemer and Trannoy (2015), Equality of opportunity, in Handbook of Income Distribution, vol 2A, ch.4. (pdf)

    Shorrocks (1978), The measurement of mobility, Econometrica, vol 46(5), 1013-1024. (pdf)

    Chapter 8: Well-being and quality of life

    Cowell and Flachaire (2014), Inequality with ordinal data, working paper.
    Easterlin (1974). Does Economic Growth Improve the Human Lot? Some Empirical Evidence. In David and Reder, eds., Nations and Households in Economic Growth. (pdf)
    Kahneman, Krueger, Schkade, Schwarz and Stone (2006), Would you be happier if you were richer? A focusing illusionScienceno. 312,‎ 1908-1910. (link)
    OECD (2013), How’s Life? 2013: Measuring Well-being, OECD Publishing. http://dx.doi.org/10.1787/9789264201392-en. (pdf and website)
    Stiglitz, Sen and Fitoussi (2009), Report by the Commission on the Measurement of Economic Performance and Social Progress. (pdf and website) 
    UNDP (2014), Human Development Report 2014Published for the United Nations Development Programme (UNDP). (pdf and website)
    Wolfers and Stevenson (2008), Economic Growth and Subjective Well-Being: Reassessing the Easterlin ParadoxBrookings Papers on Economic Activity, 39(1), 1-102. (pdf)