Regional Dynamics of Income Inequality in Peru

This paper discusses the dynamics of income inequality across regions in Peru between 2007 and 2017. Aiming to fill a gap in the usual inequality diagnosis, the article starts by describing the trends in income inequality for each region, and then focuses on (i) identifying the fraction of aggregate inequality that has been explained by inequality between and within regions, and (ii) quantifying the contributions of demographic and socioeconomic factors to these trends. All measurements are done using data from ENAHO, the National Household Survey of Peru. As regions in Peru are usually understood through political and geographical (longitudinal) categories, I employ both criteria for the purpose of this discussion. The first finding is that all but two political regions (Loreto and Madre de Dios) and all geographical regions in Peru experienced a reduction in inequality between 2007 and 2017 as measured by the Gini coeficient, but the equality gains are highly heterogeneous and seem to have slowed down since 2012. Meanwhile, using Theil indices, I show that most of aggregate inequality in Peru is explained by inequality within regions, although the between component is becoming more relevant just as inequality reduction decelerates. Finally, using counterfactual distributions, I find that the share of adults in the household, labor income, and public monetary transfers have been among the most important drivers of inequality reduction across most regions and in Peru as a whole.