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Income Inequality Decomposition by Income Source and by Population Subgroups: A Theoretical Overview and the Empirical Case of Denmark

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  • Jesper Drescher

Abstract

Analyses of income inequality are often applied to the case of measuring total income inequality in a given population, but often it is more interesting to make research into how income inequality can be related to income differences between population subgroups or how income inequality can be related to the distribution of different income sources. The first category includes the cases, where total inequality can be expressed as the sum of a within-group inequality term and a between-group term, where the within-group contribution is itself a weighted sum of the sub-group inequality values. The second category includes the cases, where the contributions of separate income sources to total income inequality are examined. Furthermore combinations of the two categories can be done. Many empirical studies have decomposed total income inequality by population subgroups or by income source, without being critical of which inequality measures that are able to be used -satisfactorily - in a decomposition. Therefore we begin in section 2 with a number of general principles that we might wish to be satisfied by any decomposition by population subgroups. Section 3 proposes some general principles that we might prefer to be satisfied by any decomposition by income sources. Section 4 gives a short overview of the data used in the following empirical studies. The empirical results of this paper are calculated on the basis of Luxembourg Income Study (LIS). Section 5 and section 6 present the empirical work of this paper. Finally section 7 summarizes the main findings of this study.

Suggested Citation

  • Jesper Drescher, 1999. "Income Inequality Decomposition by Income Source and by Population Subgroups: A Theoretical Overview and the Empirical Case of Denmark," LIS Working papers 209, LIS Cross-National Data Center in Luxembourg.
  • Handle: RePEc:lis:liswps:209
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    References listed on IDEAS

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    1. Shorrocks, Anthony F, 1984. "Inequality Decomposition by Population Subgroups," Econometrica, Econometric Society, vol. 52(6), pages 1369-1385, November.
    2. Paolo Figini, 1998. "Inequality Measures, Equivalence Scales and Adjustment for Household Size and Composition," LIS Working papers 185, LIS Cross-National Data Center in Luxembourg.
    3. Shorrocks, A F, 1980. "The Class of Additively Decomposable Inequality Measures," Econometrica, Econometric Society, vol. 48(3), pages 613-625, April.
    4. Pyatt, Graham, 1976. "On the Interpretation and Disaggregation of Gini Coefficients," Economic Journal, Royal Economic Society, vol. 86(342), pages 243-255, June.
    5. Yves Flückiger & Jacques Silber, 1995. "Income Inequality Decomposition by Income Source and the Breakdown of Inequality Differences Between Two Population Subgroups," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 131(IV), pages 599-615, December.
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    1. Cecilia García-Peñalosa & Elsa Orgiazzi, 2013. "Factor Components of Inequality: A Cross-Country Study," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 59(4), pages 689-727, December.
    2. Michele Giammatteo, 2006. "Inequality in Transition Countries: The Contributions of Markets and Government Taxes and Transfers," LIS Working papers 443, LIS Cross-National Data Center in Luxembourg.
    3. Cecilia Garcia Peñalosa & Orgiazzi, E., 2011. "GINI DP 12: Factor Components of Inequality. A Cross-Country Study," GINI Discussion Papers 12, AIAS, Amsterdam Institute for Advanced Labour Studies.
    4. Cecilia Garc a-Pe alosa & Richard Breen & Elsa Orgiazzi, 2008. "Factor Components of Inequality: Cross-Country Differences and Time Changes," LIS Working papers 503, LIS Cross-National Data Center in Luxembourg.

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