Income and Consumption Inequalities in Palestine: a Regression-Based Decomposition Approach

The inequality in the households' living standards is commonly measured by either income or consumption. Different household's attributes may affect inequality in these living standards. This study aims to investigate the factors affecting income and consumption, quantifies their proportionate contributions to income and consumption inequalities, and compares them. The data are collected from the Palestinian Household Expenditure and Consumption Survey (PECS) in 2017. To cast light on this issue, the study applies a regression-based decomposition approach to income-generating function. The results suggest that household attributes better explain adjusted consumption inequality than adjusted income inequality, which should be a better measure of living standards. Moreover, the results indicate that the region, education, and employment status are the major factors of adjusted income and consumption inequalities, while the other factor's contributions have been minimal. For policy interventions, multidimensional policies should be formulated to reduce inequality in all dimensions for achieving an overall equal society.