What Do We Know about Global Income Inequality?

Abstract

In this paper, we review the recent literature on global interpersonal income inequality. While all estimates agree that the level is very high, with a Gini of between 0.630 and 0.686 in the 1990s, there is no consensus regarding the direction of change. We discuss methodological issues, including the use of national accounts versus survey- based estimates of mean income (or consumption) and the choice of purchasing power parity exchange rates. Findings of a rise or fall in global income inequality are not robust across different estimation methods and datasets. Given the diversity of estimates and various sources of uncertainty, including gaps and errors in the underlying data, we conclude there is insufficient evidence to determine the direction of change in global interpersonal inequality in recent decades.

Global Interpersonal Inequality: Trends and Measurement

“…Anand and Segal (2008:90) have argued that 'Sensitivity analysis should be undertaken to assess the possible impact of these errors and assumptions, even if there is insu¢ cient information to estimate statistical con…dence intervals...'They also illustrate in some detail why 'The standard errors estimated in the literature do not address these concerns.' We broadly agree with Anand and Segal (2008). With respect to the di¢ culties involved in estimating statistical con…dence intervals, we would perhaps even go as far as to argue that such a task is impossible.…”

“…Again, a fuller consideration of these issues is beyond the scope of this paper, but it is clear that good measurement of inequality is essential for any such empirical analyses. 6 Some of the discussion above may seem more obviously applicable to domestic, 'withincountry,'inequality. However, as the world becomes increasingly inter-connected, it is natural that relations between global inequality and global levels of growth, health, corruption, political stability, crime and so on will increasingly be of interest.…”

“…3 Concepts and challenges in global interpersonal inequality measurement 3.1 Within-country, between-country, and global inequality Milanovic (2005) provided a useful framework, subsequently extended by Anand and Segal (2008), for distinguishing between di¤erent concepts of inequality. 7 Keeping to this framework we can de…ne four concepts of inequality.…”

“…Like Milanovic (2002), we prefer to take the cautious approach of estimating minimum levels of inequality. Anand and Segal (2008) suggest that studies which follow this approach should consider the sensitivity of the resulting estimates to di¤erent degrees of inequality, particularly the maximum possible degree of inequality, within country-quantiles. We discuss this issue in Section 7.…”

“…We are aware of some of the potential sources of error in our estimates of global inequality, including sampling error, measurement error and, as discussed by Anand and Segal (2008), assuming a single PPP price level for each country. There is also the issue of the extent to which assuming equal incomes within country-quantiles is likely to bias the inequality measures downwards.…”