Cross-country inequalities in welfare and its decomposition by Sen factors: the virtues of the Theil index

Abstract

In this study a new decomposition of the Theil index is proposed using multiplicative factors, which improves on that suggested in Duro (2001), and that, in particular, makes it possible to obtain, in isolation, the role attributable to the elements of factorial correlation. The Theil index, as a referential index in analysis, seems more attractive to us than log variance (Ezcurra and Pascual, 2005) for a variety of reasons. The application of the said decomposition for the analysis of international inequalities in terms of welfare levels, taking the Sen's factors (Sen, 1974, 1976), demonstrates that the bulk of these are determined by disparities in income per capita as well as their recent decrease.

Notes

¹ Consult, for example, the empirical applications performed by Dawson (1997) and Matyas et al . (1998) in this journal.

² The demonstration is not included in the text. Nevertheless, details are available from the author.

³ Nevertheless it would be immediate to derive results in terms of the two conventional Sen factors.

⁴ The data is available free of charge at http://pwt.econ.upenn.edu/php_site/pwt61_form.php

⁵ Ezcurra and Pascual (2005) find a different pattern in case of unweighted computations. Nevertheless, we have mentioned the drawbacks associated to this exercise.