TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Wednesday, May 16, 2018

The Elephant Curve Of Global Inequality And Growth

Facundo Alvaredo, Lucas Chancel, Thomas Piketty, Emmanuel Saez & Gabriel Zucman (Paris School of Economics), The Elephant Curve of Global Inequality and Growth:

We present new evidence on global inequality and growth since 1980 using the World and Wealth Income Database. We plot the curve of cumulated growth from 1980 to 2016 by percentile of the global distribution of income per adult. This curve has an elephant shape due to high growth rates at the median (fast growth in China and India), modest growth rates above the median, and explosive growth rates at the top. We project the evolution of global inequality between now and 2050 combining projected macro growth rates and within country inequality evolution based on past trends.

Figure 2

We show that global income inequality can be relatively well estimated from 1980 to 2016, by combining data on national incomes and available Distributional National Accounts. Our contribution is threefold. First, we attempt to go beyond country-level inequality data by comparing inequality dynamics between and within large geographic aggregates such as Europe, North America or Asia. We show that inequality increased almost everywhere, but at different speeds, revealing the important of national institutions and policy in the shaping of inequality. Second, we combine data on income inequality within these aggregates to estimate a global distribution of income since 1980. We show that our general conclusions are robust to several alternative methodologies to measure global inequality. According to our benchmark results, the global richest 1% adults captured 27% of total income growth since 1980, that is two times more than the bottom 50% adults, who collectively captured 12% of total growth over the period. The top 1% income share increased from 16% to 20% over the period. We observe a trend-break after the financial crisis, but this is only due to betweencountry reduction in inequality, as within-country inequality continued to rise. Third, we estimate the future evolution of global inequality between 2016 and 2050 by testing several assumptions about national income and population growth rates and inequality dynamics. We find that optimist assumptions about growth in emerging countries in the future will not be sufficient reduce global inequality between individuals between now and 2050 if countries continue their own inequality trends since 1980, highlighting the need for a renewed debate on the set of policies required to generare more equitable growth pathways.

Figure 1c

Figure 6

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When will one of these inequality studies use a baseline year after 1988? You can't compare taxable income reported on individual returns before and after 1988 because so much sheltering ended post-1986 reform and so much business income moved from corporate to individual returns.

We are now 30 years past 1988. At this late date the only reason to use a pre-1988 baseline is to artificially inflate the increase in high-end income.

Posted by: AMTbuff | May 16, 2018 9:58:09 AM

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