Consumer Expenditures and Inequality: An Analysis Based on Decomposition of the Gini Coefficient

Inequality in U.S. consumption expenditures is examined using the Lerman and Yitzhaki covariance method for decomposing the Gini coefficient by factors. From the decomposition, nonparametric estimates of elasticities with respect to total expenditures are derived. Using data from the 1987 U.S. Consumer Expenditure Interview Survey, the overall Gini based on total annual consumption expenditures is 0.33. Consistent with parametric expenditure elasticities, the Gini expenditure elasticities for household operations, apparel and services, and entertainment are relatively high. An implication of this result is that taxing such goods and services will increase the progressivity or reduce the regressivity of the tax system. Copyright 1993 by MIT Press.