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Can subjective data improve inequality measurement? A multidimensional index of economic inequality

Philipp Poppitz ()

No 446, Working Papers from ECINEQ, Society for the Study of Economic Inequality

Abstract: To measure multidimensional inequality by a univariate index, dimensions of inequality need to be weighted. This work addresses the normative and empirical problems by estimating hedonic weights based on German microdata. In contrast to previous works, individuals’ perception of inequality is used to estimate a weighting scheme including five dimensions. Aggregating outcomes by a generalized Gini and the hedonic weights, annual multidimensional economic inequality (MDEI) is calculated from 2000 to 2016. The results show that the MDEI is significantly higher in the analyzed period compared to the case of equal weights, but lower than income inequality. Over time, multidimensional inequality in Germany increased at the same pace as income inequality until 2006. Since then, the decreasing trend of MDEI is amplified under the assumption of imperfect substitution elasticity. The decomposition analysis reveals that income contributes more than any other dimension to inequality, but the exceptional reduction in unemployment is the major cause for the decline of the MDEI from 2008 onwards.

Keywords: inequality; multidimensional index; perception; hedonic weights (search for similar items in EconPapers)
JEL-codes: D31 C43 I30 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eur
Date: 2017-09
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