Re-Interpreting Sub-Group Inequality Decompositions

42 Pages Posted: 23 Aug 2005

See all articles by Chris Elbers

Chris Elbers

Vrije Universiteit Amsterdam, School of Business and Economics; Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)

Peter F. Lanjouw

World Bank - Development Research Group (DECRG)

Johan A. Mistiaen

The World Bank

Berk Ozler

World Bank - Development Economics Research Group (DECRG)

Date Written: August 2005

Abstract

We propose a modification to the conventional approach of decomposing income inequality by population sub-groups. Specifically, we propose a measure that evaluates observed between-group inequality against a benchmark of maximum between-group inequality that can be attained when the number and relative sizes of groups under examination are fixed. We argue that such a modification can provide a complementary perspective on the question of whether a particular population breakdown is salient to an assessment of inequality in a country. As our measure normalizes between-group inequality by the number and relative sizes of groups, it is also less subject to problems of comparability across different settings. We show that for a large set of countries our assessment of the importance of group differences typically increases substantially on the basis of this approach. The ranking of countries (or different population groups) can also differ from that obtained using traditional decomposition methods. Finally, we observe an interesting pattern of higher levels of overall inequality in countries where our measure finds higher between-group contributions.

Suggested Citation

Elbers, Chris and Lanjouw, Peter F. and Mistiaen, Johan A. and Ozler, Berk, Re-Interpreting Sub-Group Inequality Decompositions (August 2005). World Bank Policy Research Working Paper No. 3687. Available at SSRN: https://ssrn.com/abstract=786626

Chris Elbers (Contact Author)

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

Peter F. Lanjouw

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States
202-473-4529 (Phone)
202-522-1153 (Fax)

HOME PAGE: http://econ.worldbank.org/staff/planjouw

Johan A. Mistiaen

The World Bank ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States
202-473-5866 (Phone)
202-522-1153 (Fax)

HOME PAGE: http://econ.worldbank.org/staff/jmistiaen

Berk Ozler

World Bank - Development Economics Research Group (DECRG) ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

HOME PAGE: http://econ.worldbank.org/staff/bozler

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