Income Distribution and Inequality; New Directions?

Two broad channels show considerable promise for the immediate future of research on income distribution and inequality.

Data developments The availability of new, reliable data sources almost inevitably has a stimulating e¤ect on research. The development of micro-data on incomes in developing economies has facilitated not only the analysis of income distribution within each country concerned but the tricky question of meaningful international comparisons. It enables one to better address questions such as whether inequality is good for growth (Aghion et al. 1999) and the directions that the world distribution of income is taking (Sala-i-Martin 2006).

A renewed interest in the fine detail of the income distribution among the seriously rich has led to the synthesis of data from tax authorities that has added a new perspective to international comparisons Piketty (2007); new work making available micro-data on wealth will also enhance understanding of what is going on in the upper tail of the income distribution (Sierminska et al. 2006).

Inequality and the basis for social intervention The idea of inequality has long been associated with public policy prescriptions, addressing questions of whether more resources should be devoted to redistributive programmes, the meaning of tax progression and so on. For the last 35 years or so this literature has largely been based on essentially a welfarist approach to social judgments (Sen 1979). Moreover the particular form of welfarism has typically been rather narrow: the nature of inequality and of inequality aversion has been sought in a kind of social analogy with risk and risk-aversion.

Recent years have seen a reappraisal of this theoretical underpinning. The analysis of preferences under uncertainty and of preferences has been developed to richer models than simple expected-utility and to encompass broader concepts of risk-aversion (Chateauneuf et al. 2004); this is leading to parallel de- velopments in the treatment of the concept of inequality aversion (Chateauneuf and Moyes 2000). Furthermore the growing appreciation of the contribution of .behavioural public economics. (Bernheim and Rangel 2005) has led to a search for an understanding of social-welfare criteria that are not based on sim- plistic models of individual rationality. Along with this a strong interest has developed in nonwelfarist policy prescriptions that are based on broader criteria of fairness and that show appropriate concern for individual responsibility Fleurbaey 2008, Kanbur et al. 2006). This reappraisal has in.uenced thinking about the ethical basis of inequality analysis: Devooght (2007) has examined a responsibility-sensitive approach to income inequality and Cowell and Ebert (2004) have shown how alternative philosophical approaches to welfarism can be encapsulated in inequality measures that are related to concepts of deprivation.

These developments are likely to ensure that concerns with inequality will remain high on the socio-economics research agenda for some time to come.

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