ABSTRACT
There is by now quite a vast literature on the decomposition of income inequality by income sources. While Fei et al. (1978) and Pyatt et al. (1980) showed how to decompose the Gini index by factor components, Shorrocks (1982 and 1983) recommended the use of other indices such as the entropy related income inequality indices. Lerman and Yitzhaki (1985) and Silber (1989) suggested alternative algorithms to decompose the Gini index by income sources while Yitzhaki and Lerman (1994), following an earlier derivation by Stark et al. (1986), indicated the way to compute the effect of marginal changes in income sources on overall income inequality. A clear survey of the literature looking at the way income sources affect income inequality is in fact presented in Lerman (1999).
