Linking Yitzhaki’s and Dagum’s Gini Decompositions

Abstract

In this article we show that the Gini coefficient is simultaneously decomposable both by sources of income and by populations of income receivers for non-overlapping income distributions: the so-called first-best Gini multi-decomposition. We show that this multidimensional decomposition is useful for many reasons: (i) it is related to the degree of inequality aversion of the decision maker, (ii) it is especially well suited to study inequalities between poor and non-poor people, (iii) it enables one to measure within- and between-group Gini elasticities, which gauge the impact of global transfers on within- and between-group inequalities, respectively.