Measuring Income Inequality in Euroland

In this paper we propose an aggregate measure of income inequality for the founding countries of the European monetary union. Applying the methodology of the Theil index we are able to derive a measure for Euroland as a whole by exploiting information from two data sets: the European Community Household Panel and the Luxembourg Income Study. The property of additive decomposability allows us to determine each country's contribution as well as that of each demographic group to overall income inequality. In addition the impact of government transfers on this inequality measure is assessed.