Further theoretical results on the regression-based approach to inequality decomposition and application to India
The paper revisits the regression-based inequality decomposition based on Shorrocks and Fields, derives further theoretical results on the factor shares and applies them in an empirical setting. First we derive the asymptotic distribution of inequality factor share estimators for obtaining their standard deviations necessary for drawing inference. Then we generalise the approach to derive shares for a frequently used welfare-based inequality index that does not belong to the same category as those used in the earlier studies, namely the Atkinson's Index. Finally we use our theoretical results to examine the major factors that contribute to income inequality in India. Our results show that education and household size are the two most dominant factors contributing to income inequality in both rural and urban areas, followed by employment status and regional differences.
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