Biagi F., Casalone G. (2012).

The Evolution of Inequality and Poverty in Italy: 1987-2010. (ISSN 1831‐9424). JRC Technical Report, European Commission.

Abstract:

In this paper we study the evolution of poverty and inequality in Italy in the period 1987-2010. Our data are from the Bank of Italy Survey of Household Income and Wealth and the variable of interest is real income (reference year is 2009), defined using price indexes that are allowed to vary by region and that allow us to make comparisons in levels of real incomes. We construct relative poverty and inequality indexes using equivalent income obtained by applying two types of equivalence scales widely used in the literature (square root of the number of household members and ISEE scale) in order to verify how our measures of poverty and inequality are sensitive to the adoption of the equivalence scale. While we do not intend to be innovative in the measurement of poverty or inequality (we rely on widely used indexes), our aim is to depict a complete picture of the evolution of poverty and inequality with a particular attention to their determinants. By using decomposable inequality and poverty indexes we look at five decompositions: by gender, geographical areas (North West, North East, Centre and South), class age (less than 30, between 30 and 40, 40 and 50, 50 and 60 and over 60), education (compulsory school or less, upper secondary and tertiary education) and employment condition (employee, self-employed and unemployed). Given the definition of non- overlapping groups we examine-as far as inequality is concerned- the relative weights of the “within” and of the “between” components while, for poverty, we look at “poverty risks”. These analyses allow us to understand weather inequality originates mostly from differences within each group or from differences across groups and how each group influences overall poverty (measured using both the headcount ration and the average squared normalised poverty gaps that embeds the poverty gap and its distribution among the poor). Finally we consider some counterfactual exercises as to find out the effect of the changes during the analysed period of the demographic composition of the groups, of the subgroups’ mean incomes (only for inequality) and of the subgroups’ specific inequality or poverty indexes. The results show that the main determinants of the inequality and poverty evolution in Italy can be traced to geographical and educational grouping, with the age grouping relevant for poverty only.