Global Income Inequality Research Articles

BEPS, tax sovereignty and global justice

The base erosion and profit shifting (BEPS) initiative of the Organisation for Economic Co-operation and Development (OECD) and G20 countries marks an important development in the reform of the international taxation regime. In this paper I argue that the initiative nevertheless fails to provide a coherent account of what global justice requires in the realm of fiscal policy. While the OECD’s ostensible aim to increase and protect the tax sovereignty of states is commendable, there is insufficient attention for the distribution of relative tax sovereignty. I show that current global income inequality is correlated with significant inequality of tax sovereignty, that this inequality is unjust on a plausible conception of what global justice requires, and that the BEPS initiative is unlikely to meaningfully address this injustice. I close by suggesting that an internationalist conception of justice concerned with securing the tax sovereignty of independent polities may need to prescribe the creation of globally redistributive institutions.

Decomposing Global Inequality

This paper provides an intuitive additive decomposition of the global income Gini coefficient with respect to differences within and between countries. In 2005, nearly half the total global income inequality is due to income differences between Europeans and North Americans on the one side and inhabitants of Asia on the other, with the China‐USA income differences alone accounting for six percent of global inequality. Historically, income differences between Asia and Europe have driven a large part of global inequality, but the quantitative importance of within‐Asia income inequality has increased substantially since 1950.

The Rising Tide of Absolute Global Income Inequality During 1850–2010: Is It Driven by Inequality Within or Between Countries?

This paper is the first to decompose absolute global income inequality into its within-country and between-country component. The results show a continuous increase of absolute global inequality during 1850–2010, which can be separated into three distinct phases: (1) between 1850 and 1929, within-country inequality explained up to 76 % of absolute global inequality, yet the growth rates of within- and between-country inequality were very similar; (2) a sharp increase in the importance of between-country inequality occurred during the 1929–1950 period, which was followed by a period during which the within- and between-country components were approximately equally relevant; and (3) after 1985, the growth in absolute global inequality was driven primarily by the accelerated growth of within-country income differences. Currently, within-country inequality explains 70 % of absolute global market inequality, a figure close to that of the year 1850. Additional findings include that absolute income convergence between countries took place after 2005, that it is possible to reduce absolute inequality and to grow simultaneously, and that recently within-country net inequality has grown faster than market inequality. The main findings are preserved when different absolute decomposable inequality measures, sample sizes, and purchasing power parity exchange rates are used.

Never Mind the Gap: Why we shouldn’t worry about inequality

There remains a debate about the true level of wealth inequality in the UK, but the trends do not conform to the story of unprecendented or spiralling inequality that are frequently implied in the media. Wealth inequality recently widened for the first time in a decade. However, this was primarily due to housing wealth. A strong focus on inequality within nations obscures the fact that global income inequality has been falling. Net wealth inequality figures at a global level give a misleading picture of poverty and inequality. They fail to account for the demographic composition of the global population and imply, for example, that a rich westerner with large debts but few assets would find themselves at the bottom of the global distribution. The overwhelming focus on summary statistics of income or wealth at a given point in time perpetuates two misconceptions – namely, that a distribution can be easily controlled and that the economy is a zero-sum game. In reality, inequality statistics reflect the results of millions of individual interactions, exchanges, endowments and policies. Affecting a distribution of income or wealth inevitably means interferring with some of these trades or interactions.

Interaction of Global and National Income Inequalities

AbstractThe current era is characterized by simultaneous increase in many countries’ income inequalities and a decline in global inequality. People’s perception of inequality is shown to depend on how much they value absolute income vs. their national income position.

Some Reflections on the Social Welfare Bases of the Measurement of Global Income Inequality

AbstractThis paper examines the social welfare bases of the measurement of income inequality among the inhabitants of the world. We develop a general family of global inequality indices which encompasses different concepts of global equity, from the cosmopolitan to the nationalist view. The analysis also provides an interpretation of the EU-wide inequality measures adopted in European statistics.

GEOPOLITICS, INSTITUTIONS, AND ECONOMICS: ON THE RISE AND DECLINE OF CIVILIZATIONS

The purpose of this paper is to combine the analysis of geopolitics and economics. Such a project is necessarily ambitious and likely to suffer from many deficits. Since the literature in both fields is huge, important contributions must have been looked. But global reality is insufficiently reflected by the departmental structure of academic studies. Geopolitics does affect the economy and our prosperity. Economic freedom and limited government are the fruits of geopolitical accidents like European disunit)' as well as the ultimate source of the rise of the West. The export of economic freedom which we call globalization has contributed to catch up growth elsewhere, particularly in East Asia, thereby reducing global income inequality somewhat, challenging Western dominance, but simultaneously raising the prospect of a capitalist peace between the West and its challengers. While economic freedom and markets generate miracles, governments tend to fail. They build unsustainable welfare states in aging societies, run up ever higher mountains of debt, establish unviable monetary unions, and permit a type mass immigration that undermines human capital as well as economic freedom and thereby the growth prospects of Europe. Western governments, more so in Europe than in America, do not only fail at home. As the Euro crisis and the Ukrainian crisis demonstrate, responses to interstate disputes neglect the likely consequences as much as many domestic policy choices do. Self-defeating policies undermine the viability of capitalism or free markets in Europe, thereby endangering the prospect of a capitalist peace between rising and declining powers. In such a disorderly situation, attempts to combine the analysis of geopolitics and economics have to be undertaken.1. Economic Growth, Prosperity and Global Power BalancesEconomic growth determines human well-being as well as power balances. Because of its rapid economic growth it has long been predicted that the Chinese economy is likely to become equal to the American one in size - but, of course, not yet in living standards - before 2020 (Maddison 1998: 17, 96). The rise of and more slowly of India will continue to make global poverty rates and even inequality between human beings on earth fall (Bouguignon 2015) and simultaneously affect the global balance of power.1 According to Maddison's (2007: 343) estimates, might control about 23%, the USA 17%, and India 10% of gross world product in 2030. In the long run, economic development determines the rise and decline of nations which affects power balances, power transitions and the risk of war (Organski and Kugler 1980; Kugler and Lemke 1996).2 Although this is not the place to attempt analyzing the two world wars and the subsequent cold war of the 20th century, it is obvious that the world wars could not have happened without rapid German economic growth before 1914 and the Anglo-German power transition (Organski 1958), that the Asian-Pacific part of the second world war could not have happened without Japan's successful industrialization after the Meiji restoration, and that the Soviet Union could not have challenged American primacy after World War II without its establishment of a huge military-industrial complex. Although the Soviet Union never satisfied consumer wants, it built rather strong armed forces on a comparatively weak economic foundation (Luttwak 1983).The most likely future power transition concerns the United States and China. Since neither the Russian, nor the Indian economy come even close to half the size of the Chinese economy, since Europe and Japan are allied with the United States as well as still disinclined to remilitarize, the only conceivable challenger of US hegemony on the horizon is the People's Republic of (Weede 1999). According to Mearsheimer (2001: 14), China and the United States are destined to become adversaries as China's power grows. For adherents of the Realist school of thought in international relations, the two strongest powers in the world are likely to become enemies because of what they are capable to do against each other. …

Global non-linear effect of temperature on economic production.

Growing evidence demonstrates that climatic conditions can have a profound impact on the functioning of modern human societies, but effects on economic activity appear inconsistent. Fundamental productive elements of modern economies, such as workers and crops, exhibit highly non-linear responses to local temperature even in wealthy countries. In contrast, aggregate macroeconomic productivity of entire wealthy countries is reported not to respond to temperature, while poor countries respond only linearly. Resolving this conflict between micro and macro observations is critical to understanding the role of wealth in coupled human-natural systems and to anticipating the global impact of climate change. Here we unify these seemingly contradictory results by accounting for non-linearity at the macro scale. We show that overall economic productivity is non-linear in temperature for all countries, with productivity peaking at an annual average temperature of 13 °C and declining strongly at higher temperatures. The relationship is globally generalizable, unchanged since 1960, and apparent for agricultural and non-agricultural activity in both rich and poor countries. These results provide the first evidence that economic activity in all regions is coupled to the global climate and establish a new empirical foundation for modelling economic loss in response to climate change, with important implications. If future adaptation mimics past adaptation, unmitigated warming is expected to reshape the global economy by reducing average global incomes roughly 23% by 2100 and widening global income inequality, relative to scenarios without climate change. In contrast to prior estimates, expected global losses are approximately linear in global mean temperature, with median losses many times larger than leading models indicate.

A “Little Fuel” for an African-Australian Relationship?

Much of critical social science today argues that the oil crisis must be resolved by getting away from it: Alternative energy is the only answer to peak oil. Yet, recent massive and continuing oil discoveries in Africa have been offered as a potential stop-gap measure to simultaneously improve socio-economic conditions and enhance energy security on that continent, as well as to bridge global income inequalities, while supporting the energy needs of richer countries, especially at a time of continuing disquiet in the major oil producing centers in the world. Memories of plunder of African resources, formed by years of “resource curse,” however, erect dark clouds over the possibility of using oil to achieve the seemingly irreconcilable aims of oil benefit to both Africa and the rest. Australia finds itself at these crossroads: It has a looming oil crisis and an emergent relationship with Africa. In this paper, I argue for a non-determinist, research-led approach to resolve this imbroglio.

Demography, Growth, and Global Income Inequality

Global income inequality has been declining for several decades. We argue that global income inequality will reach its lowest level around 2027 and then will rise again. This development is the result of both economic and demographic forces. By combining economic projections with demographic developments and by using GDP per worker instead of GDP per capita in projecting income levels we emphasize the role of demographics in income inequality. Especially in the long run (after 2030), differences in population growth and population structure between countries in different stages of development are shown to increase global income inequality.

How much inequality in income is fair? A microeconomic game theoretic perspective

The increasing inequality in income and wealth in recent years, and the associated excessive pay packages of CEOs in the US and elsewhere, is of growing concern among policy makers as well as the common person. However, there seems to be no satisfactory answer, in conventional economic theories and models, to the fundamental questions of what kind of income distribution we ought to see, at least under ideal conditions, in a free market environment, and whether this distribution is fair. We propose a novel microeconomic game theoretic framework that addresses these questions and proves that the lognormal distribution is the fairest inequality of pay in an organization comprising of homogeneous agents, under ideal free market conditions at equilibrium. We also show that for a population of two different classes of agents, the equilibrium distribution is a combination of two different lognormal distributions where one of them, corresponding to the top ∼3–5% of the population, can be misidentified as a Pareto distribution. We compare our predictions with empirical data on global income inequality trends provided by Piketty and others. Our analysis suggests that the Scandinavian countries, and to a lesser extent Switzerland, Netherlands and Australia, have managed to get close to the ideal distribution for the bottom ∼99% of the population, while the US and UK remain less fair at the other extreme. Other European countries such as France and Germany, and Japan and Canada, are in the middle. Our theory also shows the deep and direct connection between potential game theory and statistical mechanics through entropy, which we identify as a measure of fairness in a distribution. This leads us to propose the fair market hypothesis, that the self-organizing dynamics of the ideal free market, i.e., Adam Smith’s “invisible hand”, not only promotes efficiency but also maximizes fairness under the given constraints.

ICTs, Income Inequality, and Ensuring Inclusive Growth

Thirty years ago a UN commission published the Maitland Report, proposing that by the early 21st century, every individual on the planet should “be within easy reach of a telephone” because of the economic impacts information and communications technologies (ICTs) bring forth. Today, as we approach that goal with over 90% of the global population covered by mobile cellular signals, we are in some ways surpassing it as high-speed broadband subscriptions total over 3.4 billion in 2014. This paper reviews the history of ICTs as a driver of economic growth and explores the impact of ICTs on income inequality. We find that ICTs impact on income inequality is mixed: helping to reduce global income inequality but also contributing to rising within country income inequality. A review of the macroeconomic and microeconomic literature on ICT impact on the effects of income growth posits explanations for the mixed relationship. At the country level, evidence from the last two decades demonstrates that ICT, particularly broadband Internet, drives economic growth. Studies link fixed telephony, mobile telephony, Internet use, and broadband to gross domestic product growth in a causal relationship across developed and developing countries. Increasing the intensity of data use also drives per capita income growth.At the microeconomic level, emerging analysis highlights the impact that ICTs can have on driving income growth at the bottom of the economic pyramid. Mobile phones in particular, have spread across the developing world and this ‘mobile miracle’ is contributing to income growth as handsets act not only as a communication device for sharing public and private information, but also as a educational tool delivering learning content and as a financial transfers and savings device.A direct result of ICTs impact on growth is that developing regions have experienced a steady decline in absolute poverty. The global extreme poverty rate has dropped from 1.9 billion people in 1981 to 1.3 billion in 1990 according to the World Bank: a drop in extreme poverty rates in developing countries from greater than 50 percent to 21 percent. This decline in extreme poverty has been driven by long-run economic growth in China and India, recent growth across Africa, and the impact of social programs in Latin America. The picture is more mixed however when looking at ICTs impact on income inequality. This paper discusses the data on ICTs impact on income inequality and posits explanations for the mixed impact on income inequality. Furthermore, the paper presents potential policy remedies to counter the possible income polarizing impacts of ICTs.

Class or Location? What Explains the Rising Tide of Absolute Global Income Inequality During 1850-2010?

This paper is the first to decompose absolute global income inequality into its within-country class and between-country location components. The estimates show that until 1970 locational income differences were the main driver of absolute global inequality, whereas its recent growth can be explained primarily by class differences. Nowadays, inequality between classes explains 70% of absolute global market inequality. Additional findings are that absolute income convergence between countries took place after 2005, that it is possible to reduce absolute inequality and to grow at the same time, and that of late within countries net inequality was growing faster than market inequality.

From SAPs to PRSPs: Ideological Dogmatism in Development Policy and Good Governance in the Era of Neoliberalism

After a decade of implementation, SAPs policies had horrific economic and social consequences. The policy framework was successful only at its neoliberal goals to diminish government size and to integrate developing countries into the liberal global economy. The notion of good governance was born in reaction to this failed agenda. In the view of the IFIs, the failure of SAPs to generate economic growth was not because of a flawed policy but due to bad governance that severely impeded successful implementation in low-income countries. Since the late 1980s, therefore, the notion of “good governance” as a new and sole recipe for development was devised and continues to drive international development policy and practice. Following the 1997 Asian financial crises and the uproar against the IMF’s structural adjustment prescriptions, the IFIs shifted gears, turning the rhetoric of development policy to what SAPs were not and failed to achieve. Poverty reduction was placed as top agenda of a new development policy framework, Poverty Reduction Strategy Papers (PRSPs), launched in 1999. After more than a decade, however, poverty in absolute terms continues to rise in developing countries and global income and wealth inequality widened, further worsened by the global financial crisis. Moreover, it became clear that the change of development approach has been mainly in rhetoric. In practice, there is little evidence showing a genuine shift away from neoliberal principles. In what ways are PRPSs different from SAPs? Is there a real change in development principles, policies and practices? What is the future of neoliberal development policies given the crisis of neoliberalism? What is the future of good governance in its current free market-based fashion? This paper seeks to answer these questions by examining the policy paradigms — SAPs and PRSPs — promoted under the rubric of good governance in poor countries. It critically examines the “free market” neoliberal dogma that underlies development policy, the ideological change and continuity, and the future of good governance as a recipe for development. It argues that the new consensus on good governance rest on “re-branding and re-spinning new progressive outfits for old liberal policy”, constituting “the best ideological shell of neoliberalism today.”

A Latter-Day Jacobin with a Lot of Data

Abstract Piketty underestimates the disposable income of the poor, while he overestimates the corresponding income of the rich, for systemic reasons. Recently, global income inequality has gone down. Piketty's belief that in the long run the rate of return for capital will surpass economic growth is not plausible. Capital tends to disperse, and the creative powers of capitalism, leading to economic growth, should not be underestimated. Piketty is worried about the superrich, but he should rather be worried about the increased power of government. What will happen if the rich cease to create wealth, as described in Atlas Shrugged?

Trade and Global Income Inequality with Frictional Labor Markets: A Lesson from the Canada–US Free Trade Agreement

This paper develops a two-country trade model with frictional labor market structures to investigate the link between increased openness to trade and cross-country income inequality. Calibrated to US–Canadian data, the model simulation results show that the Canada–US Free Trade Agreement benefited Canada, the country with relatively higher capital intensity, more due to its capacity to flexibly expand in response to an increase in product demand. The results from counterfactual experiments indicate that increased capital intensity in the US is expected to increase gains from trade in both countries while making the distribution of gains less unequal.

Redistribution, Globalisation, and Multi-Level Governance

Global income inequalities are met with increasing calls for direct supranational redistribution. This paper argues that from the perspective of political feasibility, this approach should not be prioritised. We use the example of tax competition to show that supranational regulation that stops short of direct redistribution has better chances of being implemented. Moreover, as the case of tax competition illustrates, such regulation can help to shore up the capacity of nation states to redistribute internally, which indirectly tends to reduce global inequalities, too. Against this background, we formulate the conditional subsidiarity principle of redistribution. It states that when the case for direct supranational redistribution is built on the alleged incapacity of the state to redistribute due to the pressures of globalisation, our first instinct should be regulatory reform in order to restore this capacity. Finally, the paper asks whether two prominent proposals for global taxation – the global resource dividend and the financial transaction tax – pass the test of the conditional subsidiarity principle.

The Ninety-Nine Percent and the One Percent

This paper explores income inequality from different angles. It tries to understand the possible reasons for income inequality that exist in the modern world. It supports the notion that exceptionally talented individuals using technology has been a reason behind rising income inequality. The paper explores whether this has been the only reason for rising global income inequality. It suggests that there may be other possible reasons, one of which is globalization Again, the paper explores the arguments for and against the ninety-nine percent and the one percent. It analyzes whether the income of the middle-class has really remained the same and argues that their income may not have necessarily stayed the same. It explores the case for higher taxation on the rich. It analyzes the consequences of income inequality on human development for countries at different stages of human development. The paper finds that the relationship between the Gini coefficient and human development is different for countries at various stages of human development. However, it finds that income inequality reduces human development for all countries irrespective of the stage of human development. Finally, the paper explores the relationship between income inequality and poverty level for the United States. It finds that poverty level in the US did not increase even though income inequality has increased.

Global Centrality and Income Inequality in U.S. Metropolitan Areas: A Test of Two Hypotheses

This article provides a quantitative assessment of two global city hypotheses: Sassen’s polarization and Hamnett’s professionalization claims. We conduct our analysis by using a continuous measure of global city status developed by researchers at the Global and World Cities Research Network (GaWC) and examining its correlation with the Gini index of household income inequality with relevant controls across a large sample of U.S. metropolitan areas in 2008. We examine industrial employment distribution as a causal pathway by which global city formation may influence urban income structures, as per Sassen and Hamnett’s original hypotheses. Results show that global city status is consistently associated with higher levels of inequality, but neither theorist’s claims about causal mechanisms are supported. This begs the question: What explains the correlation? We suggest an alternative hypothesis relating global city status to the distribution of educational credentialing.

The Great Divergence: A Network Approach

We present a multi-country theory of economic growth in which countries are connected by a network of mutual knowledge exchange. Growth is generated through human capital accumulation and knowledge externalities. The available knowledge in any country depends on its connections to the rest of the world and on the human capital of the countries it is exchanging knowledge with. We show how the diffusion of knowledge through the world explains the evolution of global income inequality. It generates a "Great Divergence'', that is increasing world inequality after the take-off of the forerunners of the industrial revolution, followed by a "Great Convergence'', that is decreasing world inequality after the take-off of the latecomers of the industrial revolution. Knowledge diffusion through a Small World network produces an extraordinary diversity of individual growth experiences of initially identical countries including differentiated take-offs to growth as well as overtaking and falling behind in the course of world development.