On factor decomposition of cross-country income inequality: some extensions and qualifications

In a recent paper in this journal Duro and Esteban [Econom. Lett. 60 (1998) 269] have proposed a factor decomposition of the Theil [Economics and Info rmation Theory, Amsterdam, North-Holland, 1967] index of inequality over pe r capita incomes into the (unweighted) sum of the inequality indexes of the factors in order to measure the contribution of each individual factor to the overall inequality. The purpose of this little note is to extend and qu alify the meaning of such a decomposition, to show that the decomposition a lso holds for another Theil [Economics and Information Theory, Amsterdam, N orth-Holland, 1967], index of inequality and that both decompositions offer qualitatively the same general results about the contribution of the facto rs to aggregate inequality when applied to a particular data set, the OECD countries, although quantitative results differ. (C) 2001 Elsevier Science B.V. All rights reserved.