Decomposing Inequality in Household Consumption Expenditure in Malaysia

Mohsen Ayyash,Siok Kun Sek

doi:10.3390/economies8040083

Abstract

This study aims to examine the sources and determinants of consumption expenditure inequality in Malaysia as well as to quantify their proportional contributions to the total explained inequality using the Household Expenditure Survey (HES) data for the year 2014 collected from the Malaysian Department of Statistics (DOSM). The study applies Field’s regression-based decomposition method to the log-linear regression model of per capita monthly consumption expenditure. It is found that the model explains about 55.2% of the variability in the logged monthly consumption expenditure per capita. The findings suggest that the size of households, education of household heads, and regional variations are the major contributing factors to consumption expenditure inequality in Malaysia, with household size being among the highest. Other household head characteristics, including ethnicity, strata, and citizenship, have small contributions to the total explained inequality. However, sex and age of household heads contributed negatively to inequality and have inequality decreasing effects, with a negative impact on inequality. A large percentage of unexplained inequality is not captured by these factors, which may be attributed to either unobserved household attributes or residuals. The results are important for policy implications and should be taken into account in formulating future policies, especially those aiming to reduce inequality among the population and thus improving living standards and well-being.

Highlights

Economic theory defines economic inequality as the unequal distribution of individuals or households’ income or consumption within a certain country and across regions or countries
The findings revealed that education and regional differences were found to be the most important determinants of income inequality in Turkey, while household head age, number of unemployed individuals in households, and the health status of each household member had little contribution to inequality
It is found that all predictors are highly significant and have influenced the consumption expenditure of household heads

Summary

Introduction

Economic theory defines economic inequality as the unequal distribution of individuals or households’ income or consumption within a certain country and across regions or countries. Economists frequently refer to the consumption expenditure to study inequality in living standards rather than income (Meyer and Sullivan 2003; Goodman and Oldfield 2004; Attanasio and Pistaferri 2016). Exhibited that consumption expenditure is a better proxy measure of households’ welfare and may accurately measure living standards rather than income. Postulated that the consumption expenditure data provide a better measure of perpetual household income and the poor household’s welfare. The department of statistics in Malaysia measures income inequality using the Gini coefficient from the Household Income Survey (HIS). This may not reflect the actual picture of how the living standard of households is distributed.

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Conclusion