Income Composition Inequality and Regional Heterogeneity: the Spanish Case

Abstract

Income Composition Inequality (ICI) has emerged as a relevant framework for linking functional and personal income distribution, yet empirical evidence remains limited and focused exclusively on national-level analyses. This paper addresses this gap by offering the first comprehensive regional study of ICI in Spain over the period 2007–2021, a context characterised by pronounced territorial heterogeneity. Using microdata from the Income and Living Conditions Survey and a set of indicators capturing primary and secondary ICI, the article provides three main contributions. First, it demonstrates that ICI varies across regions and that neither its levels nor its patterns of change follow conventional geographical divides documented in the broader inequality literature. This reveals that regional disparities in income composition represent an independent dimension of territorial inequality that cannot be inferred from standard measures of income distribution. Second, the study shows that the concentration of individual income sources (particularly wages by education level, financial income and real estate income) plays a central role in explaining regional divergence, highlighting structural factors such as ageing, specialisation in tourism or exposure to gentrification. Third, the paper documents heterogeneous redistributive capacities across regions and identifies cases where high ICI persists even after transfers, underscoring the need for region-specific approaches to fiscal policy, housing policy and human-capital accumulation. Together, these contributions advance the understanding of ICI by revealing its relevance in contexts with strong regional heterogeneity and by establishing a methodological and empirical foundation for extending regional analyses of income composition to other countries.