Background
The Atkinson Index is a significant measure in the field of economics used to gauge income inequality. This index accounts for societal welfare and how income distribution impacts it. Notably, the Atkinson Index is favored because it encapsulates social aversion to inequality more explicitly compared to other indices.
Historical Context
The Atkinson Index was developed by British economist A. B. Atkinson in 1970. His inspiration was to create a more comprehensive measure that embodies societal welfare and can adjust for varying degrees of inequality aversion. This was in response to the limitations of other measures like the Gini coefficient, which does not take into consideration different attitudes towards inequality within a society.
Definitions and Concepts
Equally Distributed Equivalent Income (MEDE)
The concept revolves around the idea of deriving an income level which, if uniformly distributed across all households, would yield the same social welfare as the actual distribution of income. The MEDE will be less than the average income if there is income inequality due to the diminishing marginal utility of income.
Atkinson Index (A)
The Atkinson Index is calculated using the formula \( A = 1 - \frac{MEDE}{\mu} \), where μ represents the mean income. Essentially, the Atkinson Index measures the deviation of the actual income distribution from the distribution required to maintain equal social welfare levels. A higher value of A indicates greater income inequality.
Major Analytical Frameworks
Classical Economics
Classical economists primarily focus on market self-regulation and invisible hand dynamics but don’t directly address income inequality measures like the Atkinson Index.
Neoclassical Economics
Neoclassical economics tends to emphasize utility maximization and marginal analysis, relevant for understanding the diminishing marginal utility concept crucial in Atkinson’s framework.
Keynesian Economics
Keynesian economics highlights the role of government intervention to manage economic cycles, providing a useful discussion framework for policy implications of income inequality.
Marxian Economics
Marxian economics focuses significantly on class struggles and income inequality, offering critical viewpoints on the effectiveness and ethical dimensions of measures like the Atkinson Index.
Institutional Economics
This framework examines how institutions and policies impact economic outcomes, making it essential for discussing the practical applications of measures like the Atkinson Index in gauging income inequality.
Behavioral Economics
Behavioral Economics acknowledges the psychological factors influencing economic decisions, extending the understanding of societal welfare that is central to the Atkinson Index.
Post-Keynesian Economics
Post-Keynesian economists look at the structural aspects of the economy, making them relevant for in-depth analysis of income inequality and its measurement.
Austrian Economics
Austrian who emphasize individual choice and market processes, generally critique income distribution measures for not accounting for these factors.
Development Economics
Given its focus on poverty, growth, and welfare, development economics heavily utilizes indices like the Atkinson Index to measure and address income inequality effectively.
Monetarism
Monetarism focuses on monetary policy and its macroeconomic outcomes, indirectly touching upon income inequality measures by addressing economic growth and inflation control.
Comparative Analysis
The Atkinson index is often compared with other measures like the Gini coefficient and the Lorenz curve. While the Gini coefficient gives a generalized view of income dispersion, the Atkinson Index is sophisticated due to its incorporation of societal welfare and inequality aversion.
Case Studies
The Atkinson Index has been applied to study various economies to understand the role of income inequality. For instance, countries with robust welfare systems may have lower Atkinson Indices compared to those with less redistributive policies.
Suggested Books for Further Studies
- “Measuring Inequality” by Frank Cowell
- “The Economics of Inequality” by Thomas Piketty
- “Income Distribution and Economic Inequality” by George Y. Yoo
Related Terms with Definitions
- Gini Coefficient: A measure of statistical dispersion intended to represent income inequality or wealth inequality.
- Lorenz Curve: A graphical representation of income or wealth distribution within an economy.
- Social Welfare: General well-being of society, often considered within analyses of income distribution and economic policies.
