published in: Journal of Economic Inequality, 2005, 3(1), 43–61
This paper develops methods for decomposing changes in the income distribution using
subgroup decompositions of the income density function. Overall changes are related to
changes in subgroup shares and changes in subgroup densities, where the latter are broken
down further using elementary transformations of individual incomes. These density
decompositions are analogous to the widely-used decompositions of inequality indices by
population subgroup, except that they summarize multiple features of the income distribution
(using graphs), rather than focusing on a specific feature such as dispersion, and are not
dependent on the choice of a specific summary index. Nonetheless, since inequality and
poverty indices can be expressed as PDF functionals, our density-based methods can also
be used to provide numerical decompositions of these. An application of the methods reveals
the multi-faceted nature of UK income distribution trends during the 1980s.
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