Calculation and decomposition of income inequality in low- and middle-income countries: a survey data analysis

Satis C. Devkota, Bishwa Koirala, Kamal P. Upadhyaya

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    2 Scopus citations

    Abstract

    This article estimates income inequality in a sample of four low- and middle-income (LMI) countries namely; Albania, Nepal, Tajikistan and Tanzania using the household survey data–Nepal Living Standard Measurement Survey Second. First, we estimate the income generation function for each country and calculate the income inequality using Gini index (GI). Second, we decompose the income Gini into the determinants of income generation functions. Based on the decomposition result, socio-economic factors are the most important determinants of income inequality followed by geographic factors. Demographic factors have the least effect on income inequality in all four countries. Third, we propose a new method to quantify the effect of change in each covariate of income generation function on income Gini. That allows us to quantify the effects of change in specific policy such as increase in investment in schooling or public health to specific group of the population in society on income inequality. A carefully chosen, integrated policy can significantly reduce inequality in all four countries under study.

    Original languageEnglish (US)
    Pages (from-to)4310-4320
    Number of pages11
    JournalApplied Economics
    Volume49
    Issue number43
    DOIs
    StatePublished - Sep 14 2017

    Keywords

    • Income inequality
    • bootstrapping
    • linear decomposition
    • low- and-middle income countries
    • policy effect

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