Chapter Inequality Measures

Inequality is a broader concept than poverty in that it is defined over the entire population, and does not only focus on the poor. The simplest measurement of inequality sorts the population from poorest to richest and shows the percentage of expenditure (or income) attributable to each fifth (quintile) or tenth (decile) of the population. The poorest quintile typically accounts for 6–10 percent of all expenditure, the top quintile for 35–50 percent. A popular measure of inequality is the Gini coefficient, which ranges from 0 (per-fect equality) to 1 (perfect inequality), but is typically in the range of 0.3 to 0.5 for per capita expenditures. The Gini coefficient is derived from the Lorenz curve, which sorts the population from poorest to richest, and shows the cumulative proportion of the population on the horizontal axis and the cumulative proportion of expendi-ture (or income) on the vertical axis. While the Gini coefficient has many desirable properties—mean independence, population size independence, symmetry, and Pigou-Dalton Transfer sensitivity—it cannot easily be decomposed to show the sources of inequality. The best known entropy measures are Theil’s T and Theil’s L, both of which allow one to decompose inequality into the part that is due to inequality within areas (for example, urban and rural) and the part that is due to differences between areas (for example, the rural-urban income gap), as well as the sources of changes in inequal-ity over time. Typically, at least three-quarters of inequality in a country is due to within-group inequality, and the remaining quarter to between-group differences. Atkinson’s class of inequality measures is quite general, and is sometimes used. The decile dispersion ratio, defined as the expenditure (or income) of the riches