Mapping the drivers of spatial inequality in Luxembourg.

Understanding spatial disparities in income distribution is crucial for designing effective and targeted public policies. However, small-area analysis is constrained by the limited representativeness of household surveys at fine geographical levels and by the lack of comprehensive income information in administrative and census data. This paper develops a spatial microsimulation framework to map and decompose income inequality across municipalities in Luxembourg by combining EU-SILC survey data, census information, and administrative statistics to simulate complete disposable income distributions at the municipal level for 2012 and 2022. The model integrates labour market behaviour, multiple income sources—including capital income and private transfers—and the tax-benefit system using EUROMOD. Spatial heterogeneity is captured through a two-step procedure that combines census-based reweighting with regression-based alignment to local demographic and labour market control totals. We further decompose overall inequality into between- and within-municipality components, observing a stronger within-municipality component. This suggests that factors operating at the local level—such as demographic composition, labour market participation, and access to specific income sources—play a central role in shaping income disparities. Our results reveal the dominant role of demographic and local structural factors in driving these disparities. By producing timely and spatially detailed estimates of disposable income and inequality, this paper demonstrates how combining spatial microsimulation with dynamic income generation can overcome data limitations and provide a powerful tool for analysing the drivers of spatial inequality and supporting evidence-based local policy design.