Edited by John B. Davis and Wilfred Dolfsma
Chapter 13: Income Distribution and Inequality
Frank A. Cowell The produce of the earth – all that is derived from its surface by the united application of labour, machinery, and capital, is divided among three classes of the community; namely, the proprietor of the land, the owner of the stock or capital necessary for its cultivation, and the labourers by whose industry it is cultivated. . . . To determine the laws which regulate this distribution, is the principal problem in Political Economy. (David Ricardo, On The Principles of Political Economy and Taxation. London: John Murray, 1817 (3rd edn 1821)) 1. Introduction The central place that Ricardo accorded the subject of income distribution in nineteenth century political economy is appropriate also in twentyﬁrst-century socio-economics. Although the ﬁeld was relatively neglected by economists for several decades, in the last 15 years there has been a resurgence of interest driven partly by developments in economic theory and partly by major developments in the interpersonal income distributions within many developed countries (Atkinson, 1997). In recent years the subject of economic inequality has developed in such a way as to have a life of its own separate from the obvious connection with the distribution of income, the distribution of wealth, the structure of wages and other related empirical topics. This distinct area of study has been built upon new insights in welfare economics and on the relationship to information theory (Cowell, 2000; Sen and Foster, 1997). Our treatment of this pair of subjects is organized as follows. Section 3 examines the ways in...
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