INCOME-DISTRIBUTION AND THE FULFILLMENT OF BASIC NEEDS - THEORY AND EMPIRICAL-EVIDENCE

The main purpose of this paper is to argue that a nonlinear, micro-based macroeconomic relationship should not only include the average of the explanatory variable but also a term reflecting the nonlinearity bias. In the case of a continuous and strictly convex function the nonlinearity bias satisfies the basic properties of an inequality measure. This result is used for examining the relationship between income inequality and basic needs fulfilment. It is argued that the impact of household income on basic needs satisfaction follows a strictly concave function. As a result, an equalization of household incomes results in a higher average level of basic needs satisfaction. This theoretical result is empirically confirmed by a regression analysis based on a cross-section data set of 54 countries. Using the same sample, it is further shown that the puzzling and sometimes contradictory results obtained in previous empirical studies are mainly caused by the fact that the specifications of the regression equations do not adequately represent the theory.