Comparing Income Distributions Using Atkinson's Measure of Inequality

• Published date: 01 March 2023
• Author: John Creedy
• Date: 01 March 2023
• DOI: http://doi.org/10.1111/1467-8462.12499

The Australian Economic Review, vol. 56, no. 1, pp. 141–155 DOI: 10.1111/1467-8462.12499

Perspective

Comparing Income Distributions Using Atkinson's Measure

of Inequality

John Creedy*

Abstract

This article is aimed at undergraduate and

graduate economics students, and public

sector economists, who are interested in

inequality measurement. It examines the use

of the Atkinson inequality measure to compare

income distributions. A major feature of this

measure is that distributional value judge-

ments are made explicit, via the use of a

particular form of social welfare function.

Emphasis is given to the interpretation of

changes in inequality and the role of the

relative inequality aversion parameter, which

reflects an important feature of those value

judgements.

JEL CLASSIFICATION

D331; D63

1. Introduction

The increased interest in inequality in recent

years has led to considerable attention being

given to changes in summary measures of

inequality. The most widely used measure in

official statistics and public debates is the Gini

index, devised in 1914 by the Italian statisti-

cian Corrado Gini (1884–1965).

1

The popu-

larity of Gini's index may perhaps be related

to the ease with which it can be described in

terms of the famous Lorenz curve diagram,

which plots the cumulative proportion of total

income against the corresponding proportion

of people, after ranking all incomes in

ascending order: it is simply twice the area

between the Lorenz curve and the diagonal

line of equality.

Despite the early suggestion by Dalton

(1920) that inequality measurement should

involve an explicit statement of the values

involved in making judgements about income

differences, it was not until 56 years after

Gini's paper that this was achieved in a major

contribution by the British economist Tony

Atkinson (1944–2017). His 1970 paper trans-

formed the way economists think about

inequality measurement, and stimulated a

vast literature which changed the subject

from the statistical analysis of a measure of

dispersion to a central topic in welfare

economics. It is undoubtedly his best‐known

paper, and was an early signpost to a

remarkable career. As remarked by

Brandolini, Jenkins and Micklewright (2018,

p. 181) in their affectionate memoir, he ‘was

* Victoria University of Wellington, Wellington, New

Zealand; email <john.creedy@vuw.ac.nz>.

I am grateful to a referee for constructive comments on an

earlier version. This article is part of a project on

‘Measuring Income Inequality, Poverty, and Mobility in

New Zealand’, funded by an Endeavour Research Grant

from the Ministry of Business, Innovation and

Employment (MBIE) and awarded to the Chair in

Public Finance.

© 2023 The University of Melbourne, Melbourne Institute: Applied Economic & Social Research,

Faculty of Business and Economics.

Published by John Wiley & Sons Australia, Ltd