SFB 303 Discussion Paper No. A - 152
Author: Apps, Patricia, and Elizabeth Savage
Title: Labour Supply, Welfare Rankings and the Measurement of Inequality
Abstract: The paper presents an analysis of inequality using money metric welfare indicators derived from different
approaches to modelling household labour supply and compares results with welfare rankings and inequality
measures defined on observed income variables. The AIDS specification of preferences is selected for the
estimation of a centralised household decision model and for a decentralised model which treats the individual as
the decision unit. The models are estimated using Australian unit record data on 2800 households. The results
indicate the sensitivity of rankings and inequality measures to the choice of model of household behaviour and
the reliability of alternative income measures as welfare indicators for policy design.
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