Alternative Distributions for Inequality and Poverty Comparisons

Abstract

This paper provides an introductory review of the alternative possible income distributions which can be used when making cross-sectional evaluations of the effects of taxes and transfers using a household economic survey. This paper attempts to clarify the various alternatives, both for users of data and those wishing to interpret results. Special attention is given to the choice of income unit. The need to avoid spurious comparisons is stressed. The use of adult equivalence scales and the application of an explicit sharing rule are considered. Comparisons over time, where both the tax structure and the populations differ, are also considered. Numerical examples are used to highlight the alternative approaches and distributions.