This paper develops a micro-econometric method to account for differences across distributions of household income. Going beyond the determination of earnings in labor markets, we also estimate statistical models for occupational choice and for the conditional distributions of education, fertility and non-labor incomes. We import combinations of estimated parameters from these models to simulate counterfactual income distributions. This allows us to decompose differences between functionals of two income distributions (such as inequality or poverty measures) into shares due to differences in the structure of labor market returns (price effects); differences in the occupational structure; and differences in the underlying distribution of assets (endowment effects). We apply the method to the differences between the Brazilian income distribution and those of the United States and Mexico, and find that most of Brazil's excess income inequality is due to underlying inequalities in the distribution of two key endowments: access to education and to sources of non-labor income, mainly pensions.
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Length: 53 pages Date of creation: 01 Feb 2002 Date of revision: Handle: RePEc:wdi:papers:2002-478
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Find related papers by JEL classification: C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution I31 - Health, Education, and Welfare - - Welfare and Poverty - - - General Welfare J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
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