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Wealth inequality: Theory, measurement and decomposition

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  • James B. Davies
  • Nicole M. Fortin
  • Thomas Lemieux

Abstract

This paper reviews the basic principles of inequality measurement, underlining the advantages and shortcomings of alternative measures from a theoretical standpoint and in the context of the study of the distribution of wealth. Adopting the two most popular measures, the Gini index and the P-shares, the paper documents wealth inequality in Canada using the 1999, 2005 and 2012 Survey of Financial Security (SFS). It carries out several decompositions with covariates, featuring DFL-type reweighting methods and Gini and P-shares RIF regressions. The latter parallel decompositions deepen our understanding of how changes in socio-demographic characteristics, including the compensating role of family formation and human capital, impact wealth inequality.

Suggested Citation

  • James B. Davies & Nicole M. Fortin & Thomas Lemieux, 2017. "Wealth inequality: Theory, measurement and decomposition," Canadian Journal of Economics, Canadian Economics Association, vol. 50(5), pages 1224-1261, December.
    • Handle: RePEc:cje:issued:v:50:y:2017:i:5:p:1224-1261
    DOI: 10.1111/caje.12313
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    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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