A Multi-Factor Inequality Approach to a Transfer Scheme: The Case of Common Agricultural Policy

Abstract

The purpose of this paper is to propose theoretical foundations on the impact of transfer scheme, e.g. Community Agricultural Policy, on income inequality within European Countries. First, we show that ex-post inequality (in the after-transfer distribution) may increase if either initial aggregate income or the amount of scal contributions are suciently high. Second according to welfare ordering, we characterize a multi-factor decomposition of the Atkinson index to gauge the impact of each income source on the inequality prole. Third, we introduce a methodology to construct a cooperative game played by dierent income factors (as net incomes and/or incoming transfers) explicitly measuring the cost of inequality across the population in terms of welfare loss. We nally rely on Banzhaf and Shapley values to determine the marginal contributions of each factor to overall inequality.