Income inequality, income composition and macroeconomic trends: Israel, 1979-93

The paper offers several explanations for income inequality trends in Israel during 1979-93. Two types of analysis are employed: decomposition of the Gini coefficient by income source and population sub-group, and time-series regression on macroeconomic variables. It is found that the slight increase in inequality over the period is a result of opposing forces, and that the major difference between the inflation (1979-84) and stabilization (1985-93) periods is in the inequality-reducing effect of direct taxes, increasing in the first period while declining in the second. Unemployment had a regressive impact, whereas inflation acted as a progressive tax in the first period but not in the second.