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An inequality decomposition method which minimizes equivalence scales contamination problems

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  • Río, Coral del
  • Ruiz-Castillo, Javier

Abstract

Decomposable measures are a useful tool to analyze the impact of households characteristics on income or expenditure inequality. However, the results are sensitive to the choice of equivalence scales in a heterogenous population. In this paper, we assume that equivalence scales depend only on the number of persons in the household. In this context, we suggest a method to free the decomposition analysis from the possible 'contamination' that will arise if we use an inappropiate equivalence scale. The method is applied to the evolution of the standard of living in Spain during the 80' s. We study the structure of Spanish inequality in 1980-81 and 1990-91, as well as the trend in overall inequality over time in terms of three factors: i) the change in within-group inequality, ii) the change in between-group inequality, and iii) the demographic change across partition subgroups.

Suggested Citation

  • Río, Coral del & Ruiz-Castillo, Javier, 1997. "An inequality decomposition method which minimizes equivalence scales contamination problems," UC3M Working papers. Economics 6038, Universidad Carlos III de Madrid. Departamento de Economía.
    • Handle: RePEc:cte:werepe:6038
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    References listed on IDEAS

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    1. Timothy Smeeding & Gunther Schmaus & Brigitte Buhmann & Lee Rainwater, 1988. "Equivalence Scales, Well-Being, Inequality and Poverty: Sensitivity Estimates Across Ten Countries Using the LIS Database," LIS Working papers 17, LIS Cross-National Data Center in Luxembourg.
    2. Sheldon Danziger & Michael K. Taussing, 1979. "The Income Unit And The Anatomy Of Income Distribution," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 25(4), pages 365-375, December.
    3. Coulter, Fiona A E & Cowell, Frank A & Jenkins, Stephen P, 1992. "Differences in Needs and Assessment of Income Distributions," Bulletin of Economic Research, Wiley Blackwell, vol. 44(2), pages 77-124, April.
    4. Frank A Cowell & Stephen P Jenkins, 1994. "How much inequality can we explain? A methodology and an application to the USA (Now published in The Economic Journal, vol.105, no.429 (March 1995), pp. 421-430)," STICERD - Distributional Analysis Research Programme Papers 07, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    5. Shorrocks, Anthony F, 1984. "Inequality Decomposition by Population Subgroups," Econometrica, Econometric Society, vol. 52(6), pages 1369-1385, November.
    6. Mookherjee, Dilip & Shorrocks, Anthony F, 1982. "A Decomposition Analysis of the Trend in UK Income Inequality," Economic Journal, Royal Economic Society, vol. 92(368), pages 886-902, December.
    7. Cowell, Frank A, 1984. "The Structure of American Income Inequality," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 30(3), pages 351-375, September.
    8. Javier Ruiz-Castillo, 1995. "Income distribution and social welfare: a review essay," Investigaciones Economicas, Fundación SEPI, vol. 19(1), pages 3-34, January.
    9. Coulter, Fiona A E & Cowell, Frank A & Jenkins, Stephen P, 1992. "Equivalence Scale Relativities and the Extent of Inequality and Poverty," Economic Journal, Royal Economic Society, vol. 102(414), pages 1067-1082, September.
    10. Buhmann, Brigitte, et al, 1988. "Equivalence Scales, Well-Being, Inequality, and Poverty: Sensitivity Estimates across Ten Countries Using the Luxembourg Income Study (LIS) Database," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 34(2), pages 115-142, June.
    11. Danziger, Sheldon & Taussig, Michael K, 1979. "The Income Unit and the Anatomy of Income Distribution," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 25(4), pages 365-375, December.
    12. Frank A. Cowell, 1984. "The Structure Of American Income Inequality," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 30(3), pages 351-375, September.
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    Cited by:

    1. Coral del Río & Javier Ruiz-Castillo, 2001. "TIPs for poverty analysis. The case of Spain, 1980-81 to 1990-91," Investigaciones Economicas, Fundación SEPI, vol. 25(1), pages 63-91, January.
    2. Garner, Thesia I. & Ruiz-Castillo, Javier & Sastre, Mercedes, 1999. "The influence of demographic and household specific price indices on expenditure based inequality and welfare: a comparison of Spain and the United States," UC3M Working papers. Economics 6165, Universidad Carlos III de Madrid. Departamento de Economía.
    3. Río, Coral del & Ruiz-Castillo, Javier, 1997. "Demographic trends and living standards the case of Spain during the 1980´s," UC3M Working papers. Economics 6060, Universidad Carlos III de Madrid. Departamento de Economía.

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    Keywords

    Inequatily decomposition;

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