Economic inequality by age and its implications for inequity for living generations in India: evidence based on National Transfer Accounts

Abstract

Using the framework of National Transfer Accounts (NTA), this paper calculates the economic inequalities by age and analyses its implications of inequity for the living generations in India. Economic inequality is measured by the standard Gini coefficient using household consumption and labour income data from the official national sample surveys. Inequity for the living generations is measured by the NTA’s concept of Lifecycle Deficit for four age groups (Young, Youth, Adults and Elderly). To highlight the nature and magnitude of inequity by types of economic inequalities and years, both income and consumption inequalities are calculated by age for financial year 2004–2005 and 2011–2012. Economic inequalities by age are integrated into the inequities for the living generations by modifying the Sen’s measure of inequality-discounted per capita income. Main results show that higher inequalities result in larger and differential impacts on inequity of the living generations. In particular, the income inequality has a larger effect on increasing inequity than consumption inequality. These results offer unambiguous evidence for the age-specific inequality effects on inequity in the living generations and show important implications in India’s policies for design of broader and complementary distributional objectives in terms of simultaneous reduction in economic inequalities and inequities for the living generations. Subject to comparability of socio-economic structure in a generational economy like India, the methodology and implications of this paper are of general relevance and applicability for developing countries in the Asia–Pacific Region and elsewhere in the world.