Spatial Dimensions of Expenditure Inequality in India: With Attention to the Roles of Education and Social Classes

Abstract

Based on the 1999/2000 and 2011/12 NSS data, this study examines inequality in household expenditure in India from spatial perspectives and analyzes the factors causing spatial disparity, using three decomposition methods: (1) a conventional Theil index decomposition by population subgroups; (2) an alternative Theil index decomposition proposed by Elbers et al. (2008), which addresses problems with the standard method, by comparing observed between-group inequality with the maximum attainable between-group inequality; and (3) the Blinder–Oaxaca decomposition. In India, the expansion of economy and rise in income levels have been accompanied by an increase in inequality. Spatial decomposition of expenditure inequality in India by six regions shows that the level of inequality within the six regions is higher than that of inequality between the six regions and the major portion of overall inequality can be attributed to intra-regional differences. Urban–rural decomposition of expenditure inequality in India as a whole and each of the six regions, respectively, indicates that inequality within urban and rural areas is more significant than inequality between urban and rural areas. Overall, inequality in urban areas increases, disparity in rural areas increases, the gap between urban and rural areas increases, and inequality at the national level increases. The share of between-area inequality is relatively lower than that of within-area inequality, when using the conventional Theil decomposition method. However, the gaps between urban and rural areas have become noticeable and are not necessarily small enough to ignore their impact. Using the alternative Theil decomposition, the share of inequality between urban and rural areas increases substantially. The result of decomposition of urban and rural inequalities by educational attainment level and social classes indicates that within-group inequalities are more significant than between-group inequalities, in both urban and rural areas. At the same time, however, within urban areas, educational differences appear to have played an important role in expenditure inequality. The Blinder–Oaxaca decomposition analysis reveals that differences in educational, social class, and job sector endowments appear to have been determinants of urban–rural disparity. This study found that the influence of between-area inequality may be more significant than we measured using the conventional Theil decomposition approach. Education could have a large impact on reducing inequality between urban and rural areas as well as inequality within urban and rural areas. Social classes and job sector would also be related to the gaps between urban and rural areas.