Income Inequality across Nations over Time: How Much and Why

Abstract

The paper aims at the (a) measurement of the extent of income inequality across countries, (b) measurement of the change in income inequality over the last decade, (c) examination of the factors responsible for the income inequality, and (d) identification of the shape and position of the Kuznets’ curve. Twenty-seven countries data at two points of time, one in 1960s and the other in 1970s, have been used. The six alternative measures of inequality, i.e. income share of the lowest 20% population, income share of the top 20% population, Gini coefficient, Their index I (based on income weights), Theil index II (based on population weights) and Kuznets index, and the regression technique have been used for the analysis. It is found that the (a) Income in equality varies widely among countries in the world. Countries with comparatively low-income inequality, in the sample, are Korea, the Netherlands, Sweden U.K. and Yugoslavia. Brazil and Mexico have witnessed rather high degree of Income inequality. It is moderate in Argentina and nothing unambigously can be stated about other countries in the sample; (b) Inequality has increased in Panama and decreased in Cost Rica, France, Italy, Sri Lanka, Taiwan, Tanzania and U.S.A. in the last decade; (c) Kuznets’ hypothesis of the inverted U-shaped curve between the income inequality and the per capita income is valid; and (d) government expenditure, the literacy rate and the growth rate in GNP are the equalizers, while the growth rate in population and the proportion of labor force in agriculture have the disequalizing effect on the economy.