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Understanding Inequality Trends:Microsimulation Decomposition for Italy

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  • Carlo V. Fiorio

Abstract

This paper suggests overcoming some limitations of traditional inequalitydecomposition methods by developing a combination of Burtless (1999) and DiNardoet al. (1996), two different microsimulation methods for decomposing inequality. Byusing this combination it is possible to take into consideration the dispersion ofincome sources as well as the socio-demographic evolution of the population understudy, in a single framework and across many years. This methodology maximizesclarity of results and allows one to easily perform tests on results. An application toItalian household inequality is provided to analyze marginal and joint effects ofdemographic trends and changed dispersion of different income factors between 1977and 2002.

Suggested Citation

  • Carlo V. Fiorio, 2006. "Understanding Inequality Trends:Microsimulation Decomposition for Italy," STICERD - Distributional Analysis Research Programme Papers 78, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  • Handle: RePEc:cep:stidar:78
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    References listed on IDEAS

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    1. Andrea Brandolini, 1999. "The Distribution of Personal Income in Post-War Italy: Source Description, Data Quality, and the Time Pattern of Income Inequality," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 58(2), pages 183-239, September.
    2. Shorrocks, A F, 1980. "The Class of Additively Decomposable Inequality Measures," Econometrica, Econometric Society, vol. 48(3), pages 613-625, April.
    3. Martin Biewen & Stephen P. Jenkins, 2003. "Estimation of Generalized Entropy and Atkinson Inequality Indices from Complex Survey Data," Discussion Papers of DIW Berlin 345, DIW Berlin, German Institute for Economic Research.
    4. Cowell, Frank A., 1989. "Sampling variance and decomposable inequality measures," Journal of Econometrics, Elsevier, vol. 42(1), pages 27-41, September.
    5. DiNardo, John & Fortin, Nicole M & Lemieux, Thomas, 1996. "Labor Market Institutions and the Distribution of Wages, 1973-1992: A Semiparametric Approach," Econometrica, Econometric Society, vol. 64(5), pages 1001-1044, September.
    6. Bourguignon, Francois, 1979. "Decomposable Income Inequality Measures," Econometrica, Econometric Society, vol. 47(4), pages 901-920, July.
    7. Jenkins, Stephen P, 1995. "Accounting for Inequality Trends: Decomposition Analyses for the UK, 1971-86," Economica, London School of Economics and Political Science, vol. 62(245), pages 29-63, February.
    8. Bourguignon, Francois & Fournier, M & Gurgand, M, 2001. "Fast Development with a Stable Income Distribution: Taiwan, 1979-94," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 47(2), pages 139-163, June.
    9. F. Chantreuil & A. Trannoy, 1999. "Inequality decomposition values : the trade-off between marginality and consistency," THEMA Working Papers 99-24, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    10. Frank A. Cowell, 1980. "On the Structure of Additive Inequality Measures," Review of Economic Studies, Oxford University Press, vol. 47(3), pages 521-531.
    11. Jonathan Morduch & Terry Sicular, 2002. "Rethinking Inequality Decomposition, With Evidence from Rural China," Economic Journal, Royal Economic Society, vol. 112(476), pages 93-106, January.
    12. Shorrocks, Anthony F, 1984. "Inequality Decomposition by Population Subgroups," Econometrica, Econometric Society, vol. 52(6), pages 1369-1385, November.
    13. Christopher Erickson & Andrea Ichino, 1995. "Wage Differentials in Italy: Market Forces, Institutions, and Inflation," NBER Chapters,in: Differences and Changes in Wage Structures, pages 265-306 National Bureau of Economic Research, Inc.
    14. Biewen, Martin & Jenkins, Stephen P., 2003. "Estimation of Generalized Entropy and Atkinson inequality indices from survey data," ISER Working Paper Series 2003-11, Institute for Social and Economic Research.
    15. Giovanni D'Alessio & Luigi Federico Signorini, 2000. "Disuguaglianza dei redditi individuali e ruolo della famiglia in Italia," Temi di discussione (Economic working papers) 390, Bank of Italy, Economic Research and International Relations Area.
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    17. Mary C. Daly & Robert G. Valletta, 2006. "Inequality and Poverty in United States: The Effects of Rising Dispersion of Men's Earnings and Changing Family Behaviour," Economica, London School of Economics and Political Science, vol. 73(289), pages 75-98, February.
    18. Burtless, Gary, 1999. "Effects of growing wage disparities and changing family composition on the U.S. income distribution," European Economic Review, Elsevier, vol. 43(4-6), pages 853-865, April.
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    Cited by:

    1. Muller, Adrian, 2006. "Clarifying Poverty Decomposition," Working Papers in Economics 217, University of Gothenburg, Department of Economics, revised 17 Nov 2008.

    More about this item

    Keywords

    Microsimulation; counterfactual analysis; household inequality trend; inequality decomposition.;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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