CASE I: Constant increases in all incomes

DD

II

II0cicxx

*

G*G

L*Li

*i

Inequality decreases

A constant increase in all incomes leads to an inequality reduction

CASE II: Proportional changes in incomes

DD

II

II)0c(icxx

*

G*G

L*Li

*i

A proportional change in all incomes does not affect the inequality level

Inequality remains

unchanged

CASE III: Income transfers

ji

ji

xx

xxInequality decreases

A progressive income transfer leads to an inequality reduction (Pigou-Dalton principle)