Measuring inequality in Bosnia and Herzegovina: focusing the performance of the Palma Index

Type Working Paper
Title Measuring inequality in Bosnia and Herzegovina: focusing the performance of the Palma Index
Publication (Day/Month/Year) 2017
The aim of the research is to analyse the inequality in consumption distribution in Bosnia and Herzegovina and its regions for three waves of Household Budget Survey (2004, 2007 and 2010). Considering that in Bosnia and Herzegovina a basic welfare measure is still household consumption expenditure we have compared the size of inequality based on consumption and income, for all available data. For this purpose, the following inequality measures were considered: the Gini coefficient, Lorenz curve, the Kuznets coefficient, the Palma index, the Theil index, as well as the coefficient of variation and the mean log deviation.The basic unit of the analysis is a household and as monetary measure of poverty equalised household consumption and income, calculated according to modified OECD scale. As the research findings, all calculated indices are showing the trend of decreasing household consumption inequality in Bosnia and Hercegovina in the observed period. According to the shape of Lorenz curves, it is seen that inequality in Bosnia and Herzegovina is declining from 2004 to 2011. This result is confirmed with Gini coefficient, the mean log deviation and the Theil index, as measures that satisfy the principle of the Lorenz consistency. The Gini coefficient (around 30%) means that there is a moderate inequality in the distribution of consumption among households in Bosnia and Herzegovina. In the Federation of Bosnia and Herzegovina and RepublikaSrpska inequality is also constantly decreasing from 2004 to 2011, while in Brcko District all measures of inequality show a greater inequality in 2007. However, according to the values of the calculated measures of inequality, the inequality of consumption distribution among households in the Brcko District is lower than in other parts of Bosnia and Herzegovina.Coefficients, that take into account only “the richest” and “the poorest” households, also shows a reduction of inequality. Coefficient of variation, the Kuznets coefficient 90/10 and the Palma index show a similar trend in the consumption inequality dynamics, with the exception of Brcko District. Further, all measures show greater income inequality in all areas. For understanding the income inequality in Bosnia and Hercegovina it is not efficient to analyse too many indices, although each of them can reveal some aspect of inequality. Based on this particular research conducted for Bosnia and Hercegovina, the authors recommend complementing the Gini coefficient, as the measure that satisfy the principle of the Lorenz consistency with the Palma index, which does not satisfy the principle of the Lorenz consistency. According to this recommendation, future consumption or income inequality analyses will be more efficient and comparisons of inequality will be simplified.

Related studies