Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 279: Stochastic Dominance Amongst Swedish Income Distributions

Almas Heshmati () and Esfandiar Maasoumi ()
Additional contact information
Almas Heshmati: Dept. of Economic Statistics, Stockholm School of Economics, Postal: P.O. Box 6501, S-113 83 Stockholm, Sweden
Esfandiar Maasoumi: Dept. of Economics, Southern Methodist University, Postal: Dallas, TX 75275-0496, U.S.A.

Abstract: Sweden's income distribution for the whole population and for subgroups, including its immigrants, has been extensively studied. The interest in this area has grown with increasing availability of data, including panels. The previous studies are based on indices of inequality or mobility. While indices are useful for complete ordering and have an air of "decisiveness" about them, they lack universal acceptance of the value judgements inherent to the welfare functions that underlay all indices. In contrast, uniform partial order relations are studied in this paper which rank welfare situations over very wide classes of welfare functions. We conduct bootstrap tests for the existence of first and second order stochastic dominance amongst Sweden's income distributions over time and for several subgroups of immigrants. Analysis of immigrant's income is motivated by the fact that the development of income for immigrants has been different and strongly affected by their length of residence and countries of origin. We consider eleven waves of a panel of incomes in Sweden. Two income definitions are developed. One is pre-transfers and taxes gross income, the other is a post-transfers and taxes disposable income. The comparison of the distribution of these two variables affords a partial view of Sweden's welfare system. We have focused on the incomes of Swede's and immigrant groups of single individuals identified by country of origin, length of residence, age, education, gender, marital status and other relevant characteristics. We find that first order dominance is rare, but second order relation holds in several cases.

Keywords: Sweden; Immigrants; Optimal policy; Stochastic Dominance; Lorenz Curves; Bootstrap; Income Distribution; Nonparametric Testing

JEL-codes: D31; D63; O15

37 pages, November 6, 1998

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