Estimating the Contribution of Circumstances that Reflect Inequality of Opportunities

Abstract:

Until recently, researchers have typically followed an indirect approach to decomposing income inequality into its “fair” and “unfair” components, by examining income mobility. This study contributes to the existing literature by demonstrating the advantages of employing a direct approach, through measuring the contribution of various sources of inequality of opportunities. Based on recent Australian data, we estimate that at least 8 per cent of total income inequality before government transfers and taxes and at least 6 per cent of total income inequality after government transfers and taxes is attributable to factors outside of people’s control.