Gini decomposition: An inequality of opportunity perspective

Abstract

Economic inequality that arises due to circumstances is unfair, whereas fair inequality is the one that emerges because of differences in individual efforts. We assume that an individual’s income is determined only by circumstances and efforts, where both factors are evident and can be ordered. We then decompose the Gini coefficient into unfair, fair, and residual Gini. The last component emerges whenever circumstance and effort jointly affect income differences, where distinguishing between fair and unfair inequalities becomes impossible.