Two extensions to Yitzhaki and LermanÔs group decomposition of the Gini index are derived and applied to data from Bangladesh to analyze how inequality is affected by education, occupation, and land ownership—and to estimate the impact of group-targeted transfers on the whole population.
Wodon provides two extensions to Yitzhaki and Lerman's group decomposition of the Gini index.
First, he analyzes stratification (within the group) and inequality (between groups) along several dimensions at once. This makes the determinants of inequality more understandable.
Second, he derives the impact on the Gini of marginal changes in income or consumption by group. This can be used to evaluate targeted redistributive policies or to assess the impact of exogenous shocks by group.
He applies the analysis to data from Bangladesh, with a focus on how inequality affects land ownership, education, and occupation.
Education appears to be a stronger determinant of inequality than occupation, with land ownership ranking third. Marginal targeted transfers and taxes have more effect on redistribution when applied to education (from the well-educated to the illiterate) or occupation groups (from officials and managers to tenants and agricultural workers).
This paper—a product of the Poverty Reduction and Economic Management Sector Unit, South Asia Region—was written as part of background work for the Bangladesh poverty assessment. Copies of the paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Jillian Badami, room MC10-336, telephone 202-458-0425, fax 202-522-2428, Internet address jbadami@worldbank.org. The author may be contacted at qwodon@worldbank.org. (33 pages)
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