Further Results on the Regression-Based Approach to Inequality Decomposition with Evidence from India
34 Pages Posted: 20 Nov 2014
Date Written: November 18, 2014
The paper revisits regression-based inequality decomposition, derives further theoretical results on the factor shares and applies them in an empirical setting. Noting that the approach based on Shorrocks and Fields is not directly applicable to an important welfare-based inequality index, namely Atkinson’s inequality index, we generalise it to derive shares for this index. We also derive the asymptotic distribution of all share estimators for obtaining their standard errors necessary for drawing inference. 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.
Keywords: Income inequality, Regression-based decompositions, Education, Labour status, India
JEL Classification: D63, C21, J24
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