Objectives Income inequality is generally measured through different appropriate index, such as Gini, coefficient of variation, Theil index, variance of logarithm and so on (Sen, 1970). In 90s, the application of the decomposition techniques to some of these inequality indexes allowed to distinguish and quantify two components of inequality, namely, inequality of opportunity (IO) and inequality due to effort (IRE). Inequality of opportunity depends on exogenous factors and for that reason, it is also called "unfair" inequality; on the other side, the residual component considers the remaining inequality exclusively due to personal effort. Following this approach to decompose an inequality index and applying it to income studies will fulfill the purpose to analyze which kind of inequality prevails.
Methods and Results
This work wants to complete the analysis adding a testing procedure to evaluate the relevance of region of residence, as exogenous circumstance, in determining inequality of opportunity. A suitable and simple method to conduct this test is represented by ANOVA analysis. However, variance has some disadvantages as inequality index; it is substituted by the Coefficient of Variation (CV). It is also shown that the F-test remain the same when passing from variance to CV. The focus of this analysis will be Italian region and data are taken from Italian Survey on Income and Living Condition conducted by ISTAT (IT-SILC database, wave 2005 and 2011).
The region of residence represents one of the most important determinant of IO in Italy and its incidence on the overall income inequality increased in the analyzed period. Furthermore, it interacts with each one of the others circumstances showing to be a key factor for the determination of IO in Italy.
Keywords: ANOVA analysis, coefficient of variation, income inequality, IT-SILC data, region of residence
Jel Code: D63; E24; I24; O15