Measuring unidimensional inequality: practical framework for the choice of an appropriate measure

Abstract

Inequality and its analysis have received increasing attention in the literature over the last decades, which has led to the development of a large number of inequality measurement methodologies. In the analysis of inequality, results rely heavily on the choice of a measurement methodology and, very often, different methodologies do not lead to the same rankings. Therefore, in the assessment of inequality, the choice of an appropriate measure is crucial. Important as this choice may be, to the best of the authors’ knowledge, there exists no research on the development of a systematic and unified framework for the selection of an adequate inequality measure depending on the context. In consideration of the foregoing, this paper provides a framework with practical guidelines for researchers and practitioners to facilitate the task of choosing the most appropriate inequality measure for their specific needs. The proposed guidelines are based on seven main properties of inequality indexes and are preceded by a comprehensive review of the different methods developed so far, focusing specifically on the advantages and drawbacks of each. Besides, they are accompanied by an empirical application of the different methodologies reviewed in order to better illustrate the various properties of the different inequality measures.