The purpose of the paper is to focus on three methodological issues regarding ''the Shapley inequality decomposition'' by factor components which cannot be solved from a theoretical point of view. First, should we use either zero income decomposition, or equalized income decomposition? Second, should we favour the Nested-Shapley or the Owen decomposition? Third, can we structure the set of income components in some bliss tree? The empirical evidence displayed by results of several variants of the Shapley decomposition using the LIS database regarding the British and American income distributions help us to propose an answer to these questions: confine the analysis on gross income decomposition and select the equalized Nested Shapley method. In the absence of an ideal tree we propose three trees among which a choice has to be made. This document was completed when Mercedes Sastre was visiting THEMA. The support of the European Commission through the Contract n ERBFMRXCT980248 is grateful acknowledged. We thank LIS for computing assistance and Frederic Chantreuil and Steve Jenkins for helpful comments. This article is forthcoming in Living Standards, Inequality and Taxation. P. Moyes, C.Seidl et A.Shorrocks eds, Kluwer 2000.

Shapley Value, Inequality, Decomposition, D31,

Income mobility, Inequality, European Community Household Panel, D31, D63, J60,

Previous research has suggested that inequality is lower in Spain than in the United States when it is based on income. For the present article, both inequality and social welfare are examined, with household consumption expenditures used as a proxy for household welfare. For tractability, equivalence scales depended only on the number of people in the household. Household‐specific price indices were used to express the 1990‐1991 expenditure distributions in 1981 and 1991 winter prices. Our results reveal that inequality and welfare comparisons are drastically different for smaller and larger households. When all households are considered, the two‐country comparison suggests that the income inequality ranking can only be maintained for expenditure distributions when economies of scale are small or nonexistent. However, welfare is always higher in the United States than in Spain. Because inflation during the 1980s in both countries was essentially distributionally neutral, all results appear to be robust to the choice of time period.

Previous research suggests that income inequality is lower in Spain than in the U.S. This paper studies whether this ranking remains the same when household consumption expenditures are used as a proxy for household welfare. Both inequality and social welfare, as components of economic well-being, are examined. Total household expenditures from each country 's 1990-91 consumer expenditure survey are used as the basis for the analysis. When consumption expenditures are substituted for income as the measure of economic well-being, the ranking of Spain and the U.S. varies as both household size and the equivalence scale adjustment change. When focusing on household size alone, inequality and welfare comparisons are drastically different for smaller and larger households. The income inequality ranking can only be maintained for expenditure distributions when economies of scale are assumed to be small or non-existent. However, welfare is always higher in the U.S. than in Spain. It is concluded that household demographic characteristics, as well as equivalence scale adjustments, can be very important in international comparisons. With regard to householdspecific relative price effects, inflation during the 1980s in both countries has been essentially neutral from a distributional point of view, so that all results are robust to the choice of time period.2