Inequality in the distribution of household expenditures in Indonesia: A theil decomposition analysis

This article explores the factors and forces underlying income inequality in Indonesia using the Theil inequality decomposition technique with household expenditure data from the 1987, 1990, and 1993 National Socio-Economic Survey (Susenas). Among factors that are considered as having affected household expenditure inequality, differences in the level of education and urban-rural disparity are found to be significant in overall inequality. Considering that more than 60 per cent of household heads have only an elementary education or less, raising general educational levels would have a significant bearing on the reduction of overall inequality in Indonesia, ceteris paribus. In contrast to education, gender inequality appears to be insignificant in Indonesia, as the ratio of mean household expenditure between male-headed and female-headed households was only 1.5.