Evaluating Real World Income Distributions Behind the Veil of Ignorance - How Risk Averse Do You Have to Be to Prefer Europe Over the US?
31 Pages Posted: 14 Nov 2011
Date Written: November 14, 2011
Abstract
The paper uses a veil of ignorance approach and income distribution data of developed countries to arrive at inequality corrected income rankings. While a risk neutral individual (based on year 2000 data) would have preferred to be born into the US rather than any European country in our sample except Luxembourg, a coefficient of relative risk aversion of 2 suffices to make several European countries look preferable. The paper also sheds light on the risk corrected average income on a gender basis and scans for times of diminished expectations, i.e. periods where the expected utility of being born into a country has reduced over time.
Keywords: income distribution, veil of ignorance, cross country comparison
JEL Classification: D310, H230
Suggested Citation: Suggested Citation