On Measuring the Redistribution of Lifetime Income

Abstract

Much so-called redistribution is between similar people at different stages of life or fortune. The proper approach, therefore, is to look at redistribution between lifetime incomes. But this raises problems of choosing the discount rate and of specifying the assumptions about alternative policies. After discussion of these, attention is focused on specific problems that arise in relation to education, especially the distinction between incidence on parents and on children. Finally, the lifetime approach is applied to various educational policy options in Britain. Here only the effects on children are examined, using a new British earnings function. For any policy, this generates a distribution of incomes (present values). Each distribution is measured for equality, using the Atkinson index, so that a policy is desirable if it raises equality proportionately more than it reduces average income.

This paper arises from work done jointly with Mark Stewart, who did the computing with superb efficiency. The author is also most grateful to M. J. Bowman, P. Dasgupta A. Flowerdew, R. Jackman, A. R. Prest, G. Psacharopoulos, A. K. Sen. C. Von Weizsacker and B. A. Weisbrod for comments and helpful discussions on various points and to the Social Science Research Council for financial support.