Social Indicators Research

, Volume 126, Issue 1, pp 79–98 | Cite as

Individual Income Inequality and Its Drivers in Indonesia: A Theil Decomposition Reassessment

Article

Abstract

This article employs a Theil decomposition analysis to examine various dimensions of income inequality, using the 2007 Indonesian Family Life Survey. The empirical strategy is based on the individual-level income data—instead of group means as in the existing literature—and thus accounts for within-group dispersion of individual incomes. The decomposition exercise reveals that income inequality across education levels constitutes about 13 % of total income inequality. The urban–rural and interprovincial dimensions individually explain 6.0–6.5 %, but the contribution of income inequality by genders appears to be negligible. The findings highlight educational reform as an effective redistributive policy.

Keywords

Income inequality Indonesia Theil decomposition 

References

  1. Adams, R. H. (1994). Non-farm income inequality in rural Pakistan: A decomposition analysis. Journal of Development Studies, 3(1), 110–133.CrossRefGoogle Scholar
  2. Adams, R. H. (2002). Non-farm Income, inequality, and land in rural Egypt. Economic Development and Cultural Change, 50(2), 339–363.CrossRefGoogle Scholar
  3. Ahluwaria, M. (1976a). Inequality, poverty and development. Journal of Development Economics, 3(4), 307–342.CrossRefGoogle Scholar
  4. Ahluwaria, M. (1976b). Income Distribution and development: Some stylized facts. American Economic Review, 66(2), 128–135.Google Scholar
  5. Akita, T. (2003). Decomposing regional income inequality in China and Indonesia using two-stage nested Theil decomposition method. Annals of Regional Science, 37(1), 55–77.CrossRefGoogle Scholar
  6. Akita, T., Kurniawan, P. A., & Miyata, S. (2011). Structural changes and regional income inequality in Indonesia: A bidimensional decomposition analysis. Asian Economic Journal, 25(1), 55–77.CrossRefGoogle Scholar
  7. Akita, T., & Lukman, R. A. (1995). Interregional inequalities in Indonesia: A sectoral decomposition analysis for 1975–92. Bulletin of Indonesian Economic Studies, 31(2), 61–81.CrossRefGoogle Scholar
  8. Akita, T., Lukman, R. A., & Yamada, Y. (1999). Inequality in the distribution of household expenditures in Indonesia: A Theil decomposition analysis. The Developing Economies, 37(2), 197–221.CrossRefGoogle Scholar
  9. Alesina, A., & Rodrik, D. (1994). Distributive politics and economic growth. Quarterly Journal of Economics, 109(2), 465–489.CrossRefGoogle Scholar
  10. Anand, S. (1983). Inequality and poverty in Malaysia: Measurement and decomposition. London: Oxford University Press.Google Scholar
  11. Anand, S., & Kanbur, S. M. R. (1993). The Kuznets process and the inequality–development relationship. Journal of Development Economics, 40(1), 25–52.CrossRefGoogle Scholar
  12. Asian Development Bank. (2007). Key indicators 2007: Inequality in Asia. Manila: Asian Development Bank.CrossRefGoogle Scholar
  13. Asian Development Bank. (2012). Asian development outlook 2012: Confronting rising inequality in Asia. Manila: Asian Development Bank.Google Scholar
  14. Baliscan, A. M., & Fuwa, N. (2004). Changes in spatial income inequality in the Philippines. UNU/WIDER research paper no. 34, World Institute for Development Economics Research, United Nations University.Google Scholar
  15. Bénabou, R. (1996). Inequality and growth. NBER working paper no. 5658, National Bureau of Economic Research.Google Scholar
  16. Blejer, M. I., & Guerrero, I. (1990). The impacts of macroeconomic policies on income distribution: An empirical study of the Philippines. Review of Economics and Statistics, 72(3), 414–423.CrossRefGoogle Scholar
  17. Bourguignon, F. (1979). Decomposable income inequality measures. Econometrica, 47(4), 901–920.CrossRefGoogle Scholar
  18. Chongvilaivan, A. (2014). Inequality in Southeast Asia. In C. Rhee, J. Zhuang, & R. Kanbur (Eds.), Inequality in Asia and the Pacific (pp. 303–328). London: Routledge and Asian Development Bank.Google Scholar
  19. De Silva, I., & Sumarto, S. (2014). Does economic growth really benefit the poor? Income distribution dynamics and pro-poor growth in Indonesia. Bulletin of Indonesian Economic Studies, 50(2), 227–242.CrossRefGoogle Scholar
  20. Deaton, A., & Zaidi, S. (2002). Guidelines for constructing consumption aggregates for welfare analysis. Living Standard Measurement Study working paper no. 135, the World Bank.Google Scholar
  21. Estudillo, J. P. (1997). Income Inequality in the Philippines, 1961–91. The Developing Economies, 35(1), 41–57.Google Scholar
  22. Firman, T. (2009). Decentralization reform and local-government proliferation in Indonesia: Towards a fragmentation of regional development. Review of Urban and Regional Development Studies, 21(2–3), 143–157.CrossRefGoogle Scholar
  23. Glewwe, P. (1986). The distribution of income in Sri Lanka in 1969–70 and 1980–81: A decomposition analysis. Journal of Development Economics, 24(2), 255–274.CrossRefGoogle Scholar
  24. Hughes, G. A., & Islam, I. (1981). Inequality in Indonesia: A decomposition analysis. Bulletin of Indonesian Economic Studies, 22(2), 80–102.Google Scholar
  25. Jha, S. K. (1996). The Kuznets curve: A reassessment. World Development, 24(4), 773–780.CrossRefGoogle Scholar
  26. Keefer, P., & Knack, S. (2002). Polarization, politics, and property rights: Link between inequality and growth. Public Choice, 111(1–2), 127–154.CrossRefGoogle Scholar
  27. Kuznets, S. (1955). Economic growth and income inequality. American Economic Review, 45(1), 1–28.Google Scholar
  28. Mishra, P., & Parikh, A. (1992). Household consumer expenditure inequalities in India: A decomposition analysis. Review of Income and Wealth, 38(2), 225–236.CrossRefGoogle Scholar
  29. Murphy, K. M., Shleifer, A., & Vishny, R. W. (1989). Industrialization and the big push. Journal of Political Economy, 97(5), 1003–1026.CrossRefGoogle Scholar
  30. Nugraha, K., & Lewis, P. (2013). Towards a better measure of income inequality in Indonesia. Bulletin of Indonesian Economic Studies, 49(1), 103–112.CrossRefGoogle Scholar
  31. Oshima, H. T. (1992). Kutznets’ curve and Asian income distribution trends. Hitotsubashi Journal of Economics, 33(1), 95–111.Google Scholar
  32. Robinson, S. (1976). A note on the U hypothesis relating income inequality and economic development. American Economic Review, 66(3), 437–440.Google Scholar
  33. Shorrocks, A. F. (1980). The class of additively decomposable inequality measures. Econometrica, 48(3), 613–625.CrossRefGoogle Scholar
  34. Sigit, H. (1985). Income distribution and household characteristics. Bulletin of Indonesian Economic Studies, 21(3), 51–68.CrossRefGoogle Scholar
  35. Theil, H. (1967). Economics and information theory. Amsterdam: North Holland.Google Scholar
  36. Van Cao, T. C., & Akita, T. (2008). Urban and rural dimensions of income inequality in Vietnam. GSIR working papers no. 2, International University of Japan.Google Scholar
  37. Yusuf, A. A., Sumner, A., & Rum, I. A. (2014). Twenty years of inequality in Indonesia, 1993–2013. Bulletin of Indonesian Economic Studies, 50(2), 243–254.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media Dordrecht 2015

Authors and Affiliations

  1. 1.Asian Development Bank (ADB)Mandaluyong City, Metro ManilaPhilippines
  2. 2.Institute of International and Area StudiesSogang UniversitySeoulRepublic of Korea

Personalised recommendations