Income Inequality Metrics - Defining Income

Defining Income

All of the metrics described below are applicable to evaluating the distributional inequality of various kinds of resources. Here the focus is on income as a resource. As there are various forms of "income", the investigated kind of income has to be clearly described.

One form of income is the total amount of goods and services that a person receives, and thus there is not necessarily money or cash involved. If a subsistence farmer in Uganda grows his own grain it will count as income. Services like public health and education are also counted in. Often expenditure or consumption (which is the same in an economic sense) is used to measure income. The World Bank uses the so-called "living standard measurement surveys" to measure income. These consist of questionnaires with more than 200 questions. Surveys have been completed in most developing countries.

Applied to the analysis of income inequality within countries, "income" often stands for the taxed income per individual or per household. Here income inequality measures also can be used to compare the income distributions before and after taxation in order to measure the effects of progressive tax rates.