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International welfare comparisons and nonparametric testing of multivariate stochastic dominance

Author

Listed:
  • Brian McCaig

    (Department of Economics, University of Toronto, Toronto, Ontario, Canada)

  • Adonis Yatchew

    (Department of Economics, University of Toronto, Toronto, Ontario, Canada)

Abstract
This paper outlines a class of statistical procedures that permit testing of a broad range of multidimensional stochastic dominance hypotheses and, more generally, welfare hypotheses that rely upon multiple stochastic dominance conditions. We apply the procedures to data on income and leisure hours for individuals in Germany, the UK, and the USA. We find that no country first-order stochastically dominates the others in both dimensions for all years of comparison. Furthermore, while in general the USA stochastically dominates Germany and the UK with respect to income, in most periods Germany stochastically dominates with respect to leisure hours. Finally, we find evidence that bivariate poverty (which refers, for example, to the working poor, that is, those who have little leisure and low income) is lower in Germany than in either the UK or the USA. On the other hand, poverty comparisons between the UK and the USA are sensitive to the subpopulation of individuals considered. Copyright © 2007 John Wiley & Sons, Ltd.

Suggested Citation

  • Brian McCaig & Adonis Yatchew, 2007. "International welfare comparisons and nonparametric testing of multivariate stochastic dominance," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(5), pages 951-969.
    • Handle: RePEc:jae:japmet:v:22:y:2007:i:5:p:951-969
    DOI: 10.1002/jae.964
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    References listed on IDEAS

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    1. Oliver Linton & Esfandiar Maasoumi & Yoon-Jae Whang, 2005. "Consistent Testing for Stochastic Dominance under General Sampling Schemes," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(3), pages 735-765.
    2. Jean-Yves Duclos & David E. Sahn & Stephen D. Younger, 2006. "Robust Multidimensional Poverty Comparisons," Economic Journal, Royal Economic Society, vol. 116(514), pages 943-968, October.
    3. Schettkat, Ronald, 2002. "Differences in US-German time-allocation: Why do Americans work longer hours than Germans?," Discussion Papers, Research Unit: Labor Market Policy and Employment FS I 02-212, WZB Berlin Social Science Center.
    4. A. B. Atkinson & F. Bourguignon, 1982. "The Comparison of Multi-Dimensioned Distributions of Economic Status," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 49(2), pages 183-201.
    5. Garry F. Barrett & Stephen G. Donald, 2003. "Consistent Tests for Stochastic Dominance," Econometrica, Econometric Society, vol. 71(1), pages 71-104, January.
    6. Hall, Peter & Yatchew, Adonis, 2005. "Unified approach to testing functional hypotheses in semiparametric contexts," Journal of Econometrics, Elsevier, vol. 127(2), pages 225-252, August.
    7. Ian Crawford, 2005. "A nonparametric test of stochastic dominance in multivariate distributions," School of Economics Discussion Papers 1205, School of Economics, University of Surrey.
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    Cited by:

    1. Christoffer Sonne-Schmidt & Finn Tarp & Lars Peter Østerdal, 2016. "Ordinal Bivariate Inequality: Concepts and Application to Child Deprivation in Mozambique," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 62(3), pages 559-573, September.
    2. David Lander & David Gunawan & William Griffiths & Duangkamon Chotikapanich, 2020. "Bayesian assessment of Lorenz and stochastic dominance," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 53(2), pages 767-799, May.
    3. Udo Ebert & Patrick Moyes, 2018. "Talents, preferences and income inequality," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 51(1), pages 13-50, June.
    4. Udo EBERT & Patrick MOYES, 2017. "The Impact of Talents and Preferences on Income Inequality," Cahiers du GREThA (2007-2019) 2017-15, Groupe de Recherche en Economie Théorique et Appliquée (GREThA).
    5. Udo Ebert, 2010. "Dominance criteria for welfare comparisons: using equivalent income to describe differences in needs," Theory and Decision, Springer, vol. 69(1), pages 55-67, July.
    6. M. Azhar Hussain & Nikolaj Siersbæk & Lars Peter Østerdal, 2020. "Multidimensional welfare comparisons of EU member states before, during, and after the financial crisis: a dominance approach," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 55(4), pages 645-686, December.
    7. Sonne-Schmidt, Christoffer & Tarp, Finn & Østerdal, Lars Peter, 2013. "Ordinal Multidimensional Inequality," WIDER Working Paper Series 097, World Institute for Development Economic Research (UNU-WIDER).
    8. Thanasis Stengos & Brennan S. Thompson & Ximing Wu, 2009. "The evolution of the conditional joint distribution of life expectancy and per capita income growth," Advances in Econometrics, in: Nonparametric Econometric Methods, pages 171-191, Emerald Group Publishing Limited.
    9. Stengos, Thanasis & Thompson, Brennan S., 2012. "Testing for bivariate stochastic dominance using inequality restrictions," Economics Letters, Elsevier, vol. 115(1), pages 60-62.
    10. David Lander & David Gunawan & William E. Griffiths & Duangkamon Chotikapanich, 2016. "Bayesian Assessment of Lorenz and Stochastic Dominance Using a Mixture of Gamma Densities," Department of Economics - Working Papers Series 2023, The University of Melbourne.
    11. Christoffer Sonne-Schmidt & Finn Tarp & Lars Peter Østerdal, 2013. "Ordinal Multidimensional Inequality," WIDER Working Paper Series wp-2013-097, World Institute for Development Economic Research (UNU-WIDER).
    12. Sonne-Schmidt, Christoffer & Tarp, Finn & Peter, Lars, 2011. "Ordinal multidimensional inequality: theory and application to the 2x2 case," MPRA Paper 72838, University Library of Munich, Germany.
    13. Christoffer Sonne-Schmidt & Finn Tarp & Lars Peter Østerdal, 2008. "Ordinal Comparison of Multidimensional Deprivation: theory and application," Discussion Papers 08-33, University of Copenhagen. Department of Economics.
    14. Dehejia Vivek H. & Voia Marcel C., 2012. "International Income Comparisons and Social Welfare: Methodology, Analysis, and Implications," Journal of Globalization and Development, De Gruyter, vol. 3(1), pages 1-24, June.

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