Accounting for change in income inequality in rural India, 1993–2011: a regression-based decomposition

Utilizing household-level income data from rural India, we study the role played by household characteristics and location in explaining the increased income inequality observed in rural India between 1993 and 2011. We use a regression-based inequality decomposition method and differentiate from prior work by focusing on income inequality and integrating district-fixed effects for spatial factors. We find that a large proportion of the observed increase in rural income inequality in India remains unexplained, and the contribution of household characteristics in accounting for increased income inequality is rather limited. We also find that the spatial factors captured by district-fixed effects have become more important drivers of income inequality in rural India. We further find that the contribution of state-level differences to income inequality has increased over time.