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Re-interpreting sub-group inequality decompositions

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  • Elbers, Chris
  • Lanjouw, Peter
  • Mistiaen, Johan A.
  • Ozler, Berk

Abstract

The authors propose a modification to the conventional approach of decomposing income inequality by population sub-groups. Specifically, they propose a measure that evaluates observed between-group inequality against a benchmark of maximum between-group inequality that can be attained when the number and relative sizes of groups under examination are fixed. The authors argue that such a modification can provide a complementary perspective on the question of whether a particular population breakdown is salient to an assessment of inequality in a country. As their measure normalizes between-group inequality by the number and relative sizes of groups, it is also less subject to problems of comparability across different settings. The authors show that for a large set of countries their assessment of the importance of group differences typically increases substantially on the basis of this approach. The ranking of countries (or different population groups) can also differ from that obtained using traditional decomposition methods. Finally, they observe an interesting pattern of higher levels of overall inequality in countries where their measure finds higher between-group contributions.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3687.

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Date of creation: 01 Aug 2005
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Handle: RePEc:wbk:wbrwps:3687

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Keywords: Inequality; Poverty Impact Evaluation; Governance Indicators; Rural Poverty Reduction; Services&Transfers to Poor;

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References

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  1. Fran?s Bourguignon & Francisco H. G. Ferreira & Marta Menendez, 2003. "Inequality of outcomes and inequality of opportunities in Brazil," Policy Research Working Paper Series 3174, The World Bank.
  2. Anthony Shorrocks & Guanghua Wan, 2005. "Spatial decomposition of inequality," Journal of Economic Geography, Oxford University Press, vol. 5(1), pages 59-81, January.
  3. Kanbur, Ravi, 2000. "Income distribution and development," Handbook of Income Distribution, in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 13, pages 791-841 Elsevier.
  4. Esteban, J. & Ray, D., 1993. "On the Measurement of Polarization," UFAE and IAE Working Papers 221.93, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  5. Cowell, F.A., 2000. "Measurement of inequality," Handbook of Income Distribution, in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 2, pages 87-166 Elsevier.
  6. Shorrocks, Anthony F, 1984. "Inequality Decomposition by Population Subgroups," Econometrica, Econometric Society, vol. 52(6), pages 1369-85, November.
  7. Davies, J. B. & Shorrocks, A. F., 1989. "Optimal grouping of income and wealth data," Journal of Econometrics, Elsevier, vol. 42(1), pages 97-108, September.
  8. Lanjouw, Jean Olson & Lanjouw, Peter, 2001. "How to Compare Apples and Oranges: Poverty Measurement Based on Different Definitions of Consumption," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 47(1), pages 25-42, March.
  9. Chris Elbers & Peter F. Lanjouw & Johan A. Mistiaen & Berk Özler & Ken Simler, 2004. "On the Unequal Inequality of Poor Communities," World Bank Economic Review, World Bank Group, vol. 18(3), pages 401-421.
  10. Cowell, Frank A, 1980. "On the Structure of Additive Inequality Measures," Review of Economic Studies, Wiley Blackwell, vol. 47(3), pages 521-31, April.
  11. Cowell, Frank A & Jenkins, Stephen P, 1995. "How Much Inequality Can We Explain? A Methodology and an Application to the United States," Economic Journal, Royal Economic Society, vol. 105(429), pages 421-30, March.
  12. Bourguignon, Francois, 1979. "Decomposable Income Inequality Measures," Econometrica, Econometric Society, vol. 47(4), pages 901-20, July.
  13. Foster, James E. & Shneyerov, Artyom A., 2000. "Path Independent Inequality Measures," Journal of Economic Theory, Elsevier, vol. 91(2), pages 199-222, April.
  14. Shorrocks, A F, 1980. "The Class of Additively Decomposable Inequality Measures," Econometrica, Econometric Society, vol. 48(3), pages 613-25, April.
  15. 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.
  16. Pyatt, Graham, 1976. "On the Interpretation and Disaggregation of Gini Coefficients," Economic Journal, Royal Economic Society, vol. 86(342), pages 243-55, June.
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Citations

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Cited by:
  1. Antonio Abatemarco, 2010. "Measuring inequality of opportunity through between-group inequality components," Journal of Economic Inequality, Springer, vol. 8(4), pages 475-490, December.
  2. Ferreira , Francisco H. G. & Gignoux, Jeremie, 2008. "The measurement of inequality of opportunity : theory and an application to Latin America," Policy Research Working Paper Series 4659, The World Bank.
  3. Michael Epprecht & Daniel Müller & Nicholas Minot, 2011. "How remote are Vietnam’s ethnic minorities? An analysis of spatial patterns of poverty and inequality," The Annals of Regional Science, Springer, vol. 46(2), pages 349-368, April.
  4. Lanjouw, Peter & Rao, Vijayendra, 2011. "Revisiting Between-Group Inequality Measurement: An Application to the Dynamics of Caste Inequality in Two Indian Villages," World Development, Elsevier, vol. 39(2), pages 174-187, February.
  5. Himanshu & Lanjouw, Peter & Murgai, Rinku & Stern, Nicholas, 2013. "Non-farm diversification, poverty, economic mobility and income inequality : a case study in village India," Policy Research Working Paper Series 6451, The World Bank.
  6. Agostini, Claudio A. & Brown, Philip H. & Roman, Andrei C., 2010. "Poverty and Inequality Among Ethnic Groups in Chile," World Development, Elsevier, vol. 38(7), pages 1036-1046, July.
  7. Chris Elbers & Peter Lanjouw & Johan Mistiaen & Berk Özler, 2008. "Reinterpreting between-group inequality," Journal of Economic Inequality, Springer, vol. 6(3), pages 231-245, September.

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