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This paper investigates spatial dimensions of income inequality in Nepal using unit record data from the Living Standards Measurement (LSM) survey of 1995/96. The Gini, Atkinson and generalized entropy indices are used to measure income inequality. The results reveal that per capita income inequality in Nepal is quite high. The decomposition analyses based on ecological and geographical groupings reveal that the contribution of between-region inequality component to aggregate income inequality is less than 10 per cent. Since the poor regions have aligned with social and political conflicts, the policies to reduce inter-regional income inequality should be given far higher priority than what the statistical decomposition analyses suggest. The geographical sub-division is more salient than the ecological sub-division for the understanding of inequality. The growth of income in all the geographical rural regions, except the Eastern Terai, should reduce aggregate income disparity in Nepal.

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