A Robust Measure of Wealth Inequality in Small Areas

This work provides a guide to small area estimation of the quantile ratio index (QRI) to measure wealth inequality across socio-economic or geographical groups. Wealth exhibits extreme positive skewness, rendering traditional inequality measures unreliable, as they are highly sensitive to extreme values. The QRI’s robustness to this phenomenon addresses this problem, making it particularly interesting for small area estimation problems. Relying on well-established methods, we employ a logit-transformed area-level model with bias-corrected back-transformation, validate it through model-based simulations, and apply it to Italian Survey on Household Income and Wealth data. The results confirm the expected strong heterogeneity in wealth inequality across municipalities and household groups, now based on an indicator that is much more robust than the traditional ones. This work thereby highlights the practical value of combining robust inequality measurement with small area estimation techniques for the production of reliable wealth inequality estimates in policy-relevant domains.