New approach to measuring income inequality

Area of Science:

• Economics
• Econometrics
• Social Sciences

Background:

• Conventional income inequality indexes possess inherent limitations.
• Existing methods incorrectly assess income inequality due to three identified problems.
• A need exists for a more accurate and comprehensive approach to measuring income disparities.

Purpose of the Study:

• To address the inaccuracies in conventional income inequality assessment.
• To introduce and develop an unequally distributed (UD) income-based approach.
• To propose a new index that integrates two distinct measures of departure from equality.

Main Methods:

• Developed an unequally distributed (UD) income-based approach.
• Decomposed income inequality into two types of departure from equality.
• Proposed the relative UD (RUD) income-based approach, combining cumulative distribution and quantile functions.

Main Results:

• The UD income-based approach corrects for identified problems in conventional indexes.
• The RUD income-based approach yields a novel index integrating two departure measures.
• The new index provides a more comprehensive assessment of income inequality.

Conclusions:

• The proposed RUD income-based approach offers a superior method for assessing income inequality.
• Integrating both types of departure from equality is crucial for a comprehensive analysis.
• The new index demonstrates practical applicability in analyzing income distributions.