income distribution, inference, poverty, subset selection
Working Papers Series
Inequality measures are often presented in the form of a rank ordering to highlight their relative magnitudes. However, a rank ordering may produce misleading inference, because the inequality measures themselves are statistical estimators with different standard errors, and because a rank ordering necessarily implies multiple comparisons across all measures. Within this setting, if differences between several inequality measures are *simultaneously* and statistically insignificant, the interpretation of the ranking is changed. This study uses a multivariate subset selection procedure to make simultaneous distinctions across inequality measures at a pre-specified confidence level. Three applications of this procedure are explored using country-level data from the Luxembourg Income Study. The findings show that simultaneous precision plays an important role in relative inequality comparisons and should not be ignored.
Horrace, William C.; Marchand, Joseph T.; and Smeeding, Timothy M., "Ranking Inequality: Applications of Multivariate Subset Selection" (2005). Center for Policy Research. 93.
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