Latest Public Economics Programme Discussion Papershttp://sticerd.lse.ac.uk/_new/publications/series.asp?prog=PEPLatest Public Economics Programme Discussion Papersen-gbCopyright CEP, London School of Economics and Political Science 201827 June 20185911Inequality Measurement and the Rich: Why inequality increased more than we thoughtFrank A Cowell, Emmanuel Flachaire http://sticerd.lse.ac.uk/dps/pep/pep36.pdf<b>PEP 36. June 2018.</b><br><br>Many standard inequality measures can be written as ratios with the mean in the denominator. When one income moves away from equality, both the numerator and the denominator may vary in the same direction and such indices may decrease. This anomalous behaviour is not shared by median-normalised inequality measures developed in this paper, where the mean at the denominator is replaced by the median. However, median-normalised inequality measures do not respect the principle of transfers. We show that the absolute Gini and the mean logarithmic deviation, or second Theil index, are the only measures that both avoid anomalous behaviour when one income is varied and also satisfy the principle of transfers. An application shows that the increase in inequality in the United States over recent decades is understated by the Gini index and that the mean logarithmic deviation index should be preferred in practice. <br><br>Full article: <a href="http://sticerd.lse.ac.uk/dps/pep/pep36.pdf">http://sticerd.lse.ac.uk/dps/pep/pep36.pdf</a>June 2018PEP 365693Inheritance Taxation: Redistribution and PredistributionFrank A Cowell, Chang He, Dirk Van de gaer http://sticerd.lse.ac.uk/dps/pep/pep35.pdf<b>PEP 35. December 2017.</b><br><br>It is well known that taxes on the transfer of wealth typically raise very little revenue. However, this does not mean that they are ineffective as tools for redistribution. In this paper we show how important such taxes can be in the long-run distribution of wealth, reducing equilibrium inequality (the "predistribution" effect) by a much larger amount than what is apparent in terms of the immediate impact of the tax (the "redistribution" effect). <br><br>Full article: <a href="http://sticerd.lse.ac.uk/dps/pep/pep35.pdf">http://sticerd.lse.ac.uk/dps/pep/pep35.pdf</a>December 2017PEP 35wealth distributioninheritanceinheritance taxation5692Condorcet was Wrong, Pareto was Right: Families, Inheritance and InequalityFrank Cowell, Dirk Van de gaer http://sticerd.lse.ac.uk/dps/pep/pep34.pdf<b>PEP 34. December 2017.</b><br><br>Using a simple model of family decision making we examine the processes by which the wealth distribution changes over the generations, focusing in particular on the division of fortunes through inheritance and the union of fortunes through marriage. We show that the equilibrium wealth distribution can be characterized in a simple way for a variety of inheritance rules and marriage patterns. The shape of the distribution is principally determined by the size distribution of families. We show how changes in fertility, inheritance rules and inheritance taxation aect long-run inequality. <br><br>Full article: <a href="http://sticerd.lse.ac.uk/dps/pep/pep34.pdf">http://sticerd.lse.ac.uk/dps/pep/pep34.pdf</a>December 2017PEP 34wealth distributioninheritanceinheritance taxation5587Risk-based Selection in Unemployment Insurance: Evidence and ImplicationsCamille Landais, Arash Nekoei, Peter Nilsson, David Seim, Johannes Spinnewijn http://sticerd.lse.ac.uk/dps/pep/pep33.pdf<b>PEP 33. October 2017.</b><br><br>This paper studies whether adverse selection can rationalize a universal mandate for unemployment insurance (UI). Building on a unique feature of the unemployment policy in Sweden, where workers can opt for supplemental UI coverage above a minimum mandate, we provide the first direct evidence for adverse selection in UI and derive its implications for UI design. We find that the unemployment risk is more than twice as high for workers who buy supplemental coverage, even when controlling for a rich set of observables. Exploiting variation in risk and prices to control for moral hazard, we show how this correlation is driven by substantial risk-based selection. Despite the severe adverse selection, we find that mandating the supplemental coverage is dominated by a design leaving the choice to workers. In this design, a large subsidy for supplemental coverage is optimal and complementary to the use of a minimum mandate. Our findings raise questions about the desirability of the universal mandate of generous UI in other countries, which has not been tested before. <br><br>Full article: <a href="http://sticerd.lse.ac.uk/dps/pep/pep33.pdf">http://sticerd.lse.ac.uk/dps/pep/pep33.pdf</a>October 2017PEP 33adverse selectionunemployment insurancemandatesubsidy5485Tony Atkinson and his LegacyA Brandolini, Stephen P Jenkins, John Micklewright http://sticerd.lse.ac.uk/dps/pep/pep32.pdf<b>PEP 32. July 2017.</b><br><br>Tony Atkinson is universally celebrated for his outstanding contributions to the measurement and analysis of inequality, but he never saw the study of inequality as a separate branch of economics. He was an economist in the classical sense, rejecting any sub-field labelling of his interests and expertise, and he made contributions right across economics. His death on 1 January 2017 deprived the world of both an intellectual giant and a deeply committed public servant in the broadest sense of the term. This collective tribute highlights the range, depth and importance of Tony’s enormous legacy, the product of over fifty years’ work. <br><br>Full article: <a href="http://sticerd.lse.ac.uk/dps/pep/pep32.pdf">http://sticerd.lse.ac.uk/dps/pep/pep32.pdf</a>July 2017PEP 32atkinson5350Welfare and Inequality Comparisons for Uni- and Multi-dimensional Distributions of Ordinal DataFrank A Cowell, Martyna Kobus, Radoslaw Kurek http://sticerd.lse.ac.uk/dps/pep/pep31.pdf<b>PEP 31. January 2017.</b><br><br>Decision makers and social planners are often faced with a problem of evaluating distributions of ordinal variables i.e. variables for which there are no numbers but only the ordering, such as, for example, self-reported health status, life satisfaction, working environment, quality of public goods, living conditions etc. Standard tools, namely, stochastic dominance, and inequality and risk measures, produce conclusions that can be reversed depending on the cardinalisation of an ordinal indicator which is arbitrary. Utilising the notion of integration on partially ordered sets we extend the well-known Hardy et al. (1934) result to an ordinal setting, both univariate and multivariate. <br><br>Full article: <a href="http://sticerd.lse.ac.uk/dps/pep/pep31.pdf">http://sticerd.lse.ac.uk/dps/pep/pep31.pdf</a>January 2017PEP 31ordinal datainequality and risk orderingswelfare orderingsassociation