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MEASURING INCOME INEQUALITY IN EUROLAND

By Miriam Beblo and Thomas Knaus

Abstract

In this paper we propose an aggregate measure of income inequality for the founding countries of the European monetary union. Applying the methodology of the Theil index we are able to derive a measure for Euroland as a whole by exploiting information from two data sets: the European Community Household Panel and the Luxembourg Income Study. The property of additive decomposability allows us to determine each country's contribution as well as that of each demographic group to overall income inequality. In addition the impact of government transfers on this inequality measure is assessed. This study has been (co-)funded by a grant from the European Commission, TMR Programme, Access to Large Scale Facilities and hosted by IRISS-C/I at CEPS/INSTEAD. We gratefully acknowledge comments from Irwin Collier, Waltraud Schelkle and Tim Smeeding and we thank the research team at CEPS/INSTEAD for their patient support. We also thank session participants at the ESPE 2000 conference and at the Vereinstagung 2000 for helpful comments. 1 MEASURING INCOME INEQUALITY IN EUROLAND In this paper we propose an aggregate measure of income inequality for the founding countries of the European monetary union. Applying the methodology of the Theil index we are able to derive a measure for Euroland as a whole by exploiting information from two data sets: the European Community Household Panel and the Luxembourg Income Study. The property of additive decomposability allows us to determine each country's contribution as well as that of each demographic group to overall income inequality. In addition the impact of government transfers on this inequality measure is assessed. 2

Year: 2000
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