Decomposition of Gini coefficients by income factors: a new approach and application

When total income consists of a number of factors, the Gini coefficient measuring income inequality can be decomposed into factor components. Some traditional decomposition methods rely on calculating the covariances between incomes and their ranks. Such methods have obvious limitations in empirical studies. This paper develops a simple decomposition approach applicable for any type of data with an example to demonstrate how income inequality in rural China in 1992 can be decomposed into agricultural and non-agricultural components.