Household income inequality in Ghana: a decomposition analysis

Purpose - The purpose of this paper is to decompose income inequality across various household income components and to estimate the marginal effects of changes in each of the income components on overall income inequality in Ghana. Design/methodology/approach - Data were collected from the fifth and sixth rounds of the Ghana Living Standards Surveys. Gini coefficient was estimated and decomposed across structured income components. The marginal effects were obtained by computing the partial derivatives of the Gini coefficient with respect to a percentage change in a particular income source. Findings - The results suggest that, in general, income inequality has increased marginally over the years (Gini coefficient of 0.66 in 2013 and 0.62 in 2006). Inequality was, however, higher in urban areas than in rural areas in 2013 with the reverse observed in 2006. The income component decomposition analysis suggests that wage employment income dominated household income in both rural and urban areas, even though the magnitude was higher in urban areas. Farm income was only dominant in rural communities in 2006. Self-employment and remittance income had consistent inequality reducing effects on total household income distribution. Originality/value - The study goes beyond inequality studies in Ghana to estimate the marginal effect of income components on inequality. Such decomposition will allow for effective policy targeting in a resource-constrained developing country like Ghana.