Inequality Decomposition Analysis and the Gini Coefficient Revisited.

The Gini coefficient has long been thought unsuitable for inequality decomposition analysis because of a troublesome and little-understood residual term that occurs when subgroup income ranges overlap after the between-groups and within-groups contributions to inequality have been separated out. In this paper, graphical analysis is used to provide a solid understanding of the residual term as a subarea of the Lorenz diagram. Implications for inequality decomposition analysis are considered. Copyright 1993 by Royal Economic Society.