Decomposing Welfare Inequality in Egypt and Tunisia: An Oaxaca-Blinder Based Approach
*Names in bold indicate Presenter
We purposefully take as case studies Tunisia and Egypt in order to perform a cross-country welfare inequality analysis. In each of these countries, large-scale protests took place beginning from late 2010 in Tunisia and spreading to Egypt in January 2011. Even though it is difficult to precisely identify the sources of these discontents, it is recognized that inequality has been a catalyst of these anti-regime social movements.
Understanding the determinants of welfare inequality will help designing the right policy measure for reducing it. The fact that the level of inequality has repercussions on the future institutional developments of countries gives it a high level of significance and importance because it might have a direct impact on the future development process.
Our paper aims to understand the main sources of differences in welfare inequality (as captured by the level of household expenditures’ distribution) between Tunisia and Egypt. In this paper, we apply a comparative inequality analysis to these two countries. As far as we know, there is no study which explores the sources of the differences in welfare inequality across these countries using comparable data and applying a decomposition analysis based on a full distribution of welfare. The differences in welfare inequality between the two countries are decomposed into the contribution of labour market, expenditures and demographic factors. This is achieved by generating sequences of counterfactual distributions of welfare in each country if these factors were imported from the other country. For simulating the counterfactual distributions of household welfare, we build a parametric household welfare generation model for each country. The counterfactual distributions are used to decompose the differences in welfare inequality between countries using the Oaxaca-Blinder approach.
Regressions’ results show that spending gaps are mainly due to education, working status, sector of employment and spatial differences (region, rural/urban). Taking Tunisia as a reference country, simulations show that changes in the expenditures’ structure and demographics are inequality decreasing. Changes in the characteristics of the labour market has however no or very limited impact on inequality as captured by the Gini Index.
From a policy-making point of view, implementing public policies to reduce spatial inequality might have an important equalizing effect on the distribution of revenues, essentially in Tunisia where the issue of regional inequality is more pronounced. Policy reforms related to education might have an important welfare equalizing effect. On the contrary, reforms to the labour market structure need to follow a different model that the one currently prevailing either in Egypt or in Tunisia.