Towards a better measure of income inequality in Indonesia

Indonesia has experienced significant economic growth in recent years (on average, 5% in 200008), but many people are still living in poverty. Income inequality, as measured by the official Gini coefficient, has also increased. This paper evaluates household income and income inequality in Indonesia, assessing both market and non-market income to reach a more accurate measure of how actual income affects living standards. We find that if household income considers non-market income, income distribution is significantly more balanced, the coefficient of income inequality falls from 0.41 to 0.21 and the income share of the population's poorest deciles increases more than fivefold. The results suggest that market income alone is a misleading measure of income distribution in Indonesia.