~ 550 ~  ISSN Print: 2394-7500 ISSN Online: 2394-5869 Impact Factor: 5.2 IJAR 2016; 2(1): 550-563 www.allresearchjournal.com Received: 16-11-2015 Accepted: 18-12-2015 Abebe Fentaw Nebebe Research scholar (Ph.D), Department of Economics, Andhra University, Visakhapatnam, Andhra Pradesh, India. CH. Appa Rao Professor, Department of Economics, Andhra University, Visakhapatnam, Andhra Pradesh, India. Correspondence Abebe Fentaw Nebeb Research scholar (Ph.D), Department of Economics, Andhra University, Visakhapatnam, Andhra Pradesh, India. Determinants of income inequality in urban Ethiopia: A study of South Wollo Administrative Zone, Amhara National Regional State Abebe Fentaw Nebebe, CH. Appa Rao Abstract The main focus of this paper is to analysis of the determinants income inequality among sampled households who find themselves at the bottom and top of the income/consumption distribution in urban centres in South Wollo Adimistrative Zone, Ethiopia. The study covered a total of 600 household heads. An assessment of the values of the General Entropy (GE) indexes is an interesting value that the GE (2) is very high for all urban centers in the study area. Surprisingly, per adult the consumption expenditure inequality is very high at the top of the distribution followed by the bottom adult equivalent consumption distribution. The contribution of the between-groups inequality component to aggregate inequality in these groups (household education head level) was estimated to be 12.96% for GE (0), 14.33% for GE(1) and 13.24% for GE(2), which was higher than other group formation. These results indicate the role of education in consumption expenditures is strongly significant. The results of OLS and quantile regression analysis also show that the household adult equivalent family size, household head main employment status or income sources, quality of houses, household energy sources, durable goods/assets, water and sanitation and place of residence are the main determinants of expenditure/ income inequality of per adult equivalent consumption expenditure across all quantiles distribution. Whereas, the household years of schooling and housing occupancy are the main determinants of expenditure/ income inequality at the bottom and higher quantiles distribution of per adult equivalent consumption expenditure. This finding of the suggests that widening access to education, supporting informal sector, urban agriculture and creation of job opportunities, urban investment to improve access to urban land urban infrastructure, the quality of life and housing development. The policy should be adopted by government and community based organizations so as to reduce urban poverty and consumption expenditure/income inequality. Keywords: Decomposition, Quantile Regression, South Wollo, Ethiopia 1. Introduction Poverty and inequality are usually studied simultaneously. Indeed the relative position of households and individuals between themselves, in addition to their absolute position, is essential in the analysis of the population welfare. It is well known that the measures of poverty focus on households or individuals below the poverty line. But measures of inequality consider the whole of the population. As for measures of poverty, as well as inequality can be calculated from an indicator such as income or expenditure, (Boccanfuso D., and Kabore T.S (2000, p 26). That is the poverty measures depend on the average level of income or consumption in a country, and the distribution of income or consumption. Based on these two elements, poverty measures then focus on the situation of those individuals or households at the bottom of the distribution. It focuses only on those whose standard of living falls below an appropriate threshold level (such as a poverty line). This threshold may be set in absolute terms (based on an externally determined norm, such as calorie requirements) or in relative terms (for example a fraction of the overall average standard of living). By contrast relative poverty is more closely related to inequality in that what it means to be poor reflects prevailing living conditions in the whole population, (McKay, A., 2002, p.1). Hence inequality is different from poverty but related to it. Inequality concerns variations in living standards across a whole population. Inequality is a broader concept than poverty in that it is defined over the entire population, not only for the population below a certain International Journal of Applied Research 2016; 2(1): 550-563