Multidimensional polarization of income and wealth: The extent and intensity of poverty and affluence

Income and wealth are important determinants of individual economic well-being because they are a fundamental resource for consumption. Due to increasing inequality the distribution of income and wealth has moved more and more into the focus of scientific and political attention. The aim of this paper is to determine the extent and the intensity of multidimensional polarization of both income and wealth. Individual well-being is modeled by a well-being function directly affected by income and wealth. In order to have a flexible functional form for the well-being function the translog function is chosen. The parameters of the well-being function are not chosen arbitrarily but determined by the German population. From the perspective of an interdependent relation of the polarization dimensions income and wealth, the extent of multidimensional poverty and affluence is represented by the number of people who are assigned to be multidimensionally poor or affluent. The polarization intensity is measured by the multidimensional mean minimum polarization gap (2DGAP). This polarization intensity measure provides a transparent representation of each singular attribute and account for their possible interdependent relations. The data basis for the empirical investigation is the SAVE study from 2010 for Germany.