Understanding Differences in Household Expenditure Inequality Between India and Indonesia

Abstract

Although they are neighbouring Asian countries with many similarities, India and Indonesia have different levels of household expenditure inequality. During the end of 2000s, the Gini coefficient of Indonesia was 9.1 percentage points larger than the Gini coefficient of India. To understand the determinants of this difference, this study decomposes it into the contribution of price effects, demographic effects and labour market structure effects. Differences in expenditure structures (price effects) and demographic characteristics are found to be the greatest contributors to the inequality gap across the two countries. The difference in the education distribution of household heads also has a positive and significant impact on the inequality gap. Differences in the labour market structure, on the other hand, turn out to be less important.