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DARP Paper
Understanding Inequality Trends: Microsimulation Decomposition for Italy
Carlo V. Fiorio
February 2006
Paper No' DARP 078:
Full Paper (pdf)

JEL Classification: D31; D63; C51

Tags: microsimulation; counterfactual analysis; household inequality trend; inequality decomposition.

This paper suggests overcoming some limitations of traditional inequality decomposition methods by developing a combination of Burtless (1999) and DiNardo et al. (1996), two different microsimulation methods for decomposing inequality. By using this combination it is possible to take into consideration the dispersion of income sources as well as the socio-demographic evolution of the population under study, in a single framework and across many years. This methodology maximizes clarity of results and allows one to easily perform tests on results. An application to Italian household inequality is provided to analyze marginal and joint effects of demographic trends and changed dispersion of different income factors between 1977 and 2002.