Spatial Income Inequality in India, 1993-2011: A Decomposition Analysis

Using income from nationally representative household surveys and district as the lowest level of aggregation, we examine the role of spatial factors in determining income inequality in India. In both rural and urban India, we find that within-district income differences account for majority of the income inequality in 2011. Moreover, between-state income differences are more important in explaining between-district inequality in rural India. In contrast, in urban areas it is the within-state income differences that play a more important role in explaining the between-district inequality. We find significantly smaller level of inequality but similar trends using the consumption expenditure. Finally, using data for 1993 and 2011, we find that although majority of the income inequality in rural India is explained by within-district income difference in both years, over time the share of between-district differences has increased and they account for a third of the total increase in rural income inequality between 1993 and 2011.