Measuring Inequality Change in an Economy with Income Growth: Reply

Abstract

[Excerpt] When an economy achieves income growth, it typically will experience a change in inequality. The purpose of my paper ‘Measuring Inequality Change in an Economy With Income Growth’ was to discuss ways of determining whether inequality increases or decreases in the event of Lorenz curves crossing. The challenge was to respond to an unmet need: the development of a non-circular justification for the choice of a particular Lorenz-consistent inequality index which is well-behaved in the context of various kinds of economic growth. The types of growth I called ‘high income sector enrichment1 and ‘low income sector enrichment1 posed no problem. What I tried to justify is the behavior of inequality when growth is of the ‘high income sector enlargement1 type. I offered one such justification leading to a new kind of Lorenz-consistent index and argued that while the standard indices might be justified by some rationalization of the inverted-U pattern, they had not yet been so justified.