Understanding Italian inequality trends: a simulation-based decomposition

By using simulation-based inequality decomposition methods, this paper analyses the peculiar trend of household equivalent income inequality in Italy between 1977 and 2004 providing a unifying framework for analysing changes of income factor distributions at the individual level, income aggregation within a household and changes of socio-demographic characteristics of the population. Changes in the distributions of employment and self-employment income explain most of the downward trend between 1977 and 1991 and of the upward trend between 1991 and 2004. Among the socio-demographic changes considered, the increased probability of earning spouse households is found to have the most relevant effect, which consistently acted towards the increase of household equivalent income inequality. Changes in the distribution of pension income had an equalising effect in all periods considered.