AN IMPLIED INCOME INEQUALITY INDEX USING L1 NORM ESTIMATION OF LORENZ CURVE

Distribution of income is among the most important issues in welfare economics. Economic literature provides different ways to measure income inequality. Most common inequality indices provide information about the income distribution and analyze the inequality of income allocation without any reference to the amount of money needed to reduce the income inequality.In this paper, we design a model to estimate the Lorenz curve function parameters. By this approach, any census summary data can be used to measure the distribution of income. We also introduce a new fiscal-compensation-based index for reduction of the degree of inequality. Using this index, we show how much transfer payment is needed to achieve the desired distribution of income consistent with the perceived economic goals of the society.