A longitudinal decomposition of Zenga’s new inequality Index
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The paper proposes a three-term decomposition of Zenga’s new inequality index over time. Given
an initial and a final time, the link among inequality trend, re-ranking, and income growth is explained
by decomposing the inequality index at the final time into three components: one measuring
the effect of re-ranking between individuals, a second term gauging the effect of disproportional
growth between individuals’ incomes, and a third component measuring the impact of the inequality
existing at the initial time. The decomposition allows one to distinguish the determinants of inequality
change from the contribution of the inequality at the initial time to the inequality at the final
time. We applied the decomposition to Italian household income data collected by the Survey on
Household Income and Wealth of the Bank of Italy, waves 2008-2010.
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