The Sensitivity of Income Polarization - Time, length of accounting periods, equivalence scales, and income definitions

This study looks at polarization and its components’ sensitivity to assumptions about equivalence scales, income definition, ethical income distribution parameters, and the income accounting period. A representative sample of Danish individual incomes from 1984 to 2002 is utilised. Results show that polarization has increased over time, regardless of the applied measure, when the last part of the period is compared to the first part of the period. Primary causes being increased inequality (alienation) and faster income growth among high incomes relative to those in the middle of the distribution. Increasing the accounting period confirms the reduction in inequality found for shorter periods, but polarization is virtually unchanged, because income group identification increases. Applying different equivalence scales does not change polarization ranking for different years, but identification ranks are affected.