Wealth distribution and accounting for changes in wealth inequality: empirical evidence from India, 1991–2012

Abstract

Despite its fast rise on the world stage and rapid economic growth, there has been a dramatic increase in wealth inequality in India in recent years. Nonetheless, the issue of wealth inequality and wealth distribution in India has been relatively less explored. In this context, we use an extension of Blinder–Oaxaca decomposition method based on the recentered influence function (RIF) proposed by Firpo et al. (Econometrics 6(2):28, https://doi.org/10.3390/econometrics6020028 , 2018) to analyze the role of household characteristics such as location, household’s composition by age, social groups, as well as education or employment on various wealth distributional measures during the period 1991–2012. We examine the effect of changing distribution of different household characteristics on wealth at various distributional measures (like ventile, Gini index, and variance). In our analysis, we observe the effect of household characteristics on wealth at different ventiles. Using counterfactual distribution analysis, we decomposed the inter-period difference in inequality into characteristics (explained) and coefficients (unexplained) effects. We then decompose changes in wealth at each ventile, Gini index, the variance of log of wealth, 90–10 percentile wealth gap, 50–10 wealth gap, and 90–50 wealth gap during 1991–2002 and 2002–2012 to see the composition effect and wealth structure effect. The composition effect shows the effect of change in the considered household characteristics, whereas the wealth structure effect shows the effect of change in returns to these characteristics. We noticed that during 1991–2002, wealth at lower quantile has decreased whereas it has increased for other quantiles, whereas during 2002–2012, we observe that wealth increase is highest at lower quantiles and is positive for all ventiles. In the case of inequality measures, we observe that all inequality measures have increased during 1991–2002, whereas during 2002–2012, only Gini and 90–50 gap has increased while other measures have decreased.