Subgroup Decomposability of Income-Related Inequality of Health, with an Application to Australia

The main purpose of this paper is to compare the decomposition properties of rank‐dependent and level‐dependent indicators of income‐related inequality of health. We do so by focusing on the decomposition by population groups. We show that level‐dependent indices have more desirable subgroup decomposability properties than rank‐dependent indices. This may prove to be an important argument in favour of the use of level‐dependent indices. The difference between the subgroup decomposition results of rank‐dependent and level‐dependent indices is illustrated by means of an empirical study using Australian health and income data. We consider subgroups based on sex, age and employment status.