Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2014:36: A New Approach to Decomposition of a Bivariate Rank Dependent Index Using Recentered Influence Function Regression

Gawain A. Heckley (), Ulf-G. Gerdtham () and Gustav Kjellsson ()
Additional contact information
Gawain A. Heckley: Health Economics Unit, Lund University, Postal: Medicon Village, SE-223 81 Lund, Sweden,
Ulf-G. Gerdtham: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden
Gustav Kjellsson: Department of Economics, Gothenburg University

Abstract: Decomposition of a bivariate rank dependent index, such as the concentration index, is commonly used to explain socioeconomic inequalities in health. We introduce a new decomposition technique based on the recentered influence function that yields the marginal effects of covariates on the bivariate rank dependent index. This technique is simple to estimate and interpret. We show that our method, compared to the current standard procedure, relies on the imposition of fewer conditions and is therefore preferable both in a descriptive setting and in the estimation of causal effects given a suitable identification strategy. In an empirical application using Swedish Twin Registry data, we illustrate that this result bears out in practice. The two methods yield contradicting results due to differences in the conditions imposed. Using a within twin pair fixed effects identification strategy, our new method finds no evidence of a causal effect of education on income-related health inequality.

Keywords: Health inequality; decomposition; rank-dependent index; recentered influence functions; Concentration index

JEL-codes: I10; I14; I30

48 pages, First version: November 18, 2014. Revised: April 1, 2015.

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