Robustness Properties of Inequality Measures: The Influence Function and the Principle of Transfers (Revised version in Economica, 64 (1996), pp.77-101)

Inequality measures are often used to summarise information about empirical income distributions. However , the resulting picture of the distribution and of the changes in the distribution can be severely distorted if the data are contaminated. The nature of this distortion will in general depend upon the underlying properties of the inequality measure. We investigate this issue theoretically using a technique based on the influence function, and illustrate the magnitude of the effect using a simulation. We consider both direct nonparametric estimation from the sample, and the indirect estimation using a parametric model; in the latter case we demonstrate the application of a robust estimation procedure.