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Decomposition of the Gini Index by Sources of income.

Article Excerpt
Abstract The Gini concentration coefficient is considered to be the best synthetic inequality measure and is widely used in economic research. In this paper, we present its decomposition by factor components with an application to income distributions in Poland. Income inequality measures proposed by Gini, Zenga and Bonferroni are calculated for different socio-economic groups based on their exclusive or primary source of maintenance. For theoretical income distribution, the Dagum type-I model was used. The basis for the calculations was the individual data coming from the Household Budgets Survey conducted quarterly by the Polish Central Statistical Office. Using the decomposition of inequality by source, we were able to examine how changes in particular income components affected overall inequality.

Key words Income inequality. Income distribution

JEL C10. J30

Introduction

The period of economic transformation in Poland (since 1990) was characterized by a series of fundamental changes in economy. Among other things, the changes influenced income and earning distribution by size. It was connected with greater possibilities of economic activity of different social groups and, simultaneously, with a growing polarization of personal income.

Income distribution research concentrates mainly on the following two areas: (1) the construction of an income distribution model well fitted to the data and (2) measuring income inequality and subsequently calculating poverty measures or comparing distributions from a social welfare point of view.

The Gini Index of Concentration

The Gini coefficient or index (Gini 1912) is perhaps one of the most used indicators of social and economic condition. This measure is understood by many economists and has been applied in numerous numerical studies and policy research. The Gini index can be used to measure the dispersion of a distribution of income, or consumption, or wealth or any other kind of distribution.

It can be expressed as a ratio of two regions defined by a line of equal shares and a Lorenz curve in a unit box (Gini 1912; Lorenz 1905) or a function of Gini mean difference (Gini 1912),...