Essays on inequality, discrimination and opportunities for the case of Nepal

Inequality has increased in many countries during the 1990s, and particularly in countries experiencing higher growth; inequality has also been found to negatively affect the impact of growth on poverty reduction. While a certain amount of income inequality can be considered to be a natural consequence of the functioning of markets, it is rather uncontroversial that inequality should not stem from factors such as gender, ethnicity, or other socio-economic background variables for which an indivual cannot be held responsible. In the study of inequality is therefore important to evaluate what are the major factors contributing to inequality itself and to go beyond inequality of income, investigating inequality in the opportunities for income acquisition. This dissertation studies these two issues with specific reference to Nepal, a developing country where ethnicity, gender, education and geographical location play a relevant role in explaining inequality. The dissertation is made of three separate papers. In the first one (Chapter 1), I apply an Oaxaca-Blinder type decomposition of inequality to investigate whether ethnicity is a significant determinant of inequality in per-capita consumption, also taking into account inequalities in the occupational structure. My findings corroborate claims of discrimination against disadvantaged caste/ethnicities in Nepal for the period 1995 - 2004 period but indicate that the phenomenon has decreased over the observed period. In the second and third paper I focus on inequality of opportunities, with the specific purpose to obtain a measure inequality of opportunity. The second paper (Chapter 2) reviews the very recent empirical literature on inequality of opportunity in order to identify the applied methodologies and the main issues faced by researchers. Chapter 3 is the main paper of my dissertation and develops a new empirical methodology to estimate inequality of opportunity. This is achieved by estimating the impact of a number of circumstances on per capita consumption through a Hausman and Taylor estimator where unobserved individual effects account for unobserved effort. The proposed procedure is applied to the 1995- 2004 panel Nepal household survey and reveals that inequality of opportunity in Nepal is greater among wealthier households than among poorer ones; inequality of opportunity is also found to be reduced more by equalizing the distribution of infrastructures than by equalizing socio-economic background variables