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1、A Review of Decomposition of Income InequalityIZA DP No. 1221A Review of Decompositionof Income InequalityAlmas HeshmatiJuly 2004Forschungsinstitutzur Zukunft der ArbeitInstitute for the Studyof LaborDISCUSSION PAPER SERIES A Review of Decomposition of Income Inequality Almas Heshmati MTT Economic R
2、esearch and IZA Bonn Discussion Paper No. 1221 July 2004 IZA P.O. Box 7240 53072 Bonn Germany Phone: +49-228-3894-0 Fax: +49-228-3894-180 Email: izaiza.org Any opinions expressed here are those of the author(s) and not those of the institute. Research disseminated by IZA may include views on policy,
3、 but the institute itself takes no institutional policy positions. The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent nonprofit company supported by Deutsch
4、e Post World Net. The center is associated with the University of Bonn and offers a stimulating research environment through its research networks, research support, and visitors and doctoral programs. IZA engages in (i) original and internationally competitive research in all fields of labor econom
5、ics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. IZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A rev
6、ised version may be available on the IZA website (.iza.org) or directly from the author. IZA Discussion Paper No. 1221 July 2004 ABSTRACT A Review of Decomposition of Income Inequality This paper is a review of recent developments of parametric and non-parametric approaches to decompose inequality b
7、y subgroups, income sources, causal factors and other unit characteristics. Different methods of decomposing changes in poverty into growth, redistribution, poverty standard and residual components are described. In parametric approaches the dynamics of income accounting for transitory and permanent
8、 changes in individual and household earnings conditional of various covariates are also reviewed. Statistical inferences for inequality measurement including delta and bootstrapping and other methods to provide estimates of the sampling distribution are presented. These issues are important in the
9、design of policy measures and expectations about their impacts on earnings inequality and poverty reductions. JEL Classification: C10, D31, I32, N30 Keywords: income inequality, poverty, decomposition, parametric, non-parametric, Gini index Almas Heshmati MTT Economic Research Luutnantintie 13 00410
10、 Helsinki Finland Email: Almas.Heshmatimtt.fi 1. INTRODUCTION There is an ongoing and increasing interest in measuring and understanding the level, causes and development of income inequality. The 1990s signified a shift in research previously focused on economic growth, the identification of the de
11、terminants of economic growth and convergence in GDP per capita across countries to analysis of distribution of income, its development over time and identification of factors determining the distribution of income. This shift in focus is specifically from the issues of convergence or divergence of
12、per capita incomes to the long-term equalisation or 1polarisation of incomes across regions and countries. This shift is not only a reflection of technological change and raised human capacity to create growth and wealth, but also due to awareness of the growing disparity and importance of redistrib
13、ution and poverty reduction. The growing disparity calls for analysis of various aspects of income inequality including its measurement, decomposition and causal factors. Income inequality refers to the inequality of the distribution of individuals, household or some per capita measure of income. Lo
14、renz Curve is used for analysing the size distribution of income and wealth and measures of inequality and poverty. It plots the cumulative share of total income against the cumulative proportion of income receiving units. The divergence of a Lorenz curve for perfect equality and the Lorenz curve fo
15、r a given income distribution is measured by some index of inequality. The most widely used index of inequality is the Gini coefficient (for reviews of the notion and analysis of inequality see Subramanian 1997 and Cowell 2000). There are two parametric approaches to estimate the Lorenz curve (Ryu a
16、nd Slottje, 1999). In the first approach one assumes a hypothetical statistical distribution for income distribution and in the second approach, a specific functional form is fit to the Lorenz curve directly (Chotikapanich and Griffiths 2002). An important drawback of the traditional models of the Lorenz curve is a lack of satisfactory fit over the entire range of a given income distribution. Ogwang and Rao (2000)
