Reference distributions and inequality measurement

Abstract : We investigate a general problem of comparing pairs of distributions which includes approaches to inequality measurement, the evaluation of “unfair” income inequality, evaluation of inequality relative to norm incomes, and goodness of fit. We show how to represent the generic problem simply using (1) a class of divergence measures derived from a parsimonious set of axioms and (2) alternative types of “reference distributions.” The problems of appropriate statistical implementation are discussed and empirical illustrations of the technique are provided using a variety of reference distributions.