This paper critically reviews methods for assessing the contributions of various income sources to total income inequality. After reviewing existing literature on how income sources, such as wages, dividends, rents, and social benefits, affect income distribution, we highlight the prominent role of natural decomposition methods. Despite their widespread application over the past 50 years, this method has faced criticism, particularly concerning the treatment of uniformly distributed income sources and the interpretability of contribution terms. Also examined are marginal decompositions and replacement approaches, the latter including the well-known Shapley value decomposition. The analysis of empirical data from 27 EU countries in 2021 explains the reasons for a significant divergence among the results obtained through various methods and inequality indices. The paper discusses preferred methods, clarifies the meaning of contribution terms, and provides other recommendations for practitioners.
