This paper discusses interpretations of different inequality decomposition rules when inequality is decomposed by income sources. It argues that authors of a recent article based their conclusions on misinterpreted decomposition results. It also argues that marginal effects, derived as elasticities of inequality with respect to uniform increases in income from each source, are easily interpreted and can be compared across different decomposition rules.
Bibliographical noteFunding Information:
This research was funded by the Center for Agricultural Economic Research. Helpful comments and suggestions by Myoung-jae Lee and Shlomo Yitzhaki, as well as seminar participants at the Department of Agricultural Economics and Management of the Hebrew University, the School of Economics at Nagoya University, The Department of Economics at Bar Ilan University, and the 2007 annual meeting of the Israel Economic Association, are gratefully acknowledged.
- Income inequality
- Income sources
- Marginal effects