K.U.Leuven, Faculty of Economics and Applied Economics : Department of Economics
CES - Discussion Paper Series (DPS) 05.08 pages:1-27
We revisit the well-known decomposition of the Gini coefficient into betweengroups, within-groups and overlap terms in the context of two groups in which the incomes in one group may be scaled and that group’s population weight modified. In this more general setting than usual, we focus on the properties of the overlap term, proving inter alia that overlap unambiguously reduces as a result of a within-group progressive transfer, and is increased by scaling up the incomes in the group with the lower mean, reaching a maximum when the two means become the same.
In the case of a socially heterogeneous population and equivalized incomes, the effect on the Gini overlap of changing the income unit is determined, along with that of adjusting the equivalence scale deflator in case the income unit is the equivalent adult (such adjustment simultaneously changing the weighting of income units).