International inequality (Concept 3)

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International inequality (Concept 3). Milanovic, Global inequality and its implications Lectures 6-9. How are Concepts 2 and 3 related?. In Gini terms: where Gi=individual country Gini, =income share, y i = country income, pi = popul. share, =overall mean income, n = number of countries - PowerPoint PPT Presentation

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  • International inequality (Concept 3)Milanovic, Global inequality and its implicationsLectures 6-9

  • In Gini terms:

    where Gi=individual country Gini, =income share, yi = country income, pi = popul. share, =overall mean income, n = number of countriesIn Theil: How are Concepts 2 and 3 related?

  • 1. Inequality between world citizens today

  • Methodological issuesGDI per capita or HS meanDefinitional difference (H&E, undisbursed profits) andPractical difference (under-surveying of the rich and under-reporting of property Y)Mixing of the two biases both poverty and inequality downMoreover, movements in NA and HS statistics are different If HS mean is it HSY or HSX?

  • Methodological issues (cont.)Even if HS welfare indicator is selected definitions of X,Y vary in time & btw. countriesIssues: self-employed Y, home C, imputation of housing, treatment of publicly provided H&E, use of top coding, under-estimation of property incomesWhat PPP to useEquivalence scales & intra-HH inequality

  • The difficulty stems from contradictory movementsGreater inequality within nationsGreater differences between countries mean incomes (think of US vs. Africa)But catching up of large and poor countriesAll of these forces determine what happens to GLOBAL INEQUALITY (but they affect it differently)

  • 2. First calculations of global inequality from household survey data alone

  • Population coverageNon-triviality of the omitted countries (Maddison vs. WDI)

  • GDI (US dollar) coverage

  • Number of surveys (C-based)

  • Global inequality(distribution of persons by $PPP or US$ income per capita)

  • Confrontation with other Concept 3 calculations

    concept2-sala

    63.351.489864

    63.450.958806

    63.950.781715

    64.350.667539

    6450.524494

    63.649.605058

    64.149.836575

    6447.75591

    64.250.658943

    64.151.097893

    63.851.074808

    63.651.371382

    6348.82277

    62.848.82751

    62.849.048367

    62.649.418939

    62.549.32579

    62.648.693586

    62.748.618871

    63.148.983451

    6349.04527

    62.648.76463

    62.148.299717

    61.548.581487

    61.448.409069

    61.148.244882

    60.948.41555

    60.947.992705

    60.947.900374

    Sala-I-Martin calculation

    Concept 2 inequality

    Gini coefficient

    Sheet1

    Sala-I-MartinMilanovicBourguignonDowrick and akmalDikhanovChotikapanichBhallaSutcliffeConcept 2

    197063.365.466.70.5151.5

    197163.40.5151.0

    197263.90.5150.8

    197364.369.30.5150.7

    1974640.5150.5

    197563.60.5049.6

    197664.10.5049.8

    1977640.4847.8

    197864.20.5150.7

    197964.10.5151.1

    198063.865.769.868.265.868.563.80.5151.1

    198163.60.5151.4

    1982630.4948.8

    198362.80.4948.8

    198462.80.4949.0

    198562.664.70.4949.4

    198662.50.4949.3

    198762.60.4948.7

    198862.762.20.4948.6

    198963.10.4949.0

    19906368.664.80.4949.0

    199162.663.30.4948.8

    199262.166.30.4848.3

    199361.565.371.10.4948.6

    199461.40.4848.4

    199561.10.4848.2

    199660.90.4848.4

    199760.90.4848.0

    199860.964.10.4847.9

    199968.3

    200065.162.8

    2001

    200265.2

    results

    63.3197065.4197066.7197019701970

    63.41971197119711971197119711971

    63.91972197219721972197219721972

    64.31973197319731973197369.31973

    641974197419741974197419741974

    63.61975197519751975197519751975

    64.11976197619761976197619761976

    641977197719771977197719771977

    64.21978197819781978197819781978

    64.11979197919791979197919791979

    63.8198065.769.868.265.868.563.8

    63.61981198119811981198119811981

    631982198219821982198219821982

    62.81983198319831983198319831983

    62.81984198419841984198419841984

    62.6198519851985198564.719851985

    62.51986198619861986198619861986

    62.61987198719871987198719871987

    62.762.2198819881988198819881988

    63.11989198919891989198919891989

    6319901990199068.664.819901990

    62.619911991199119911991199163.3

    62.1199266.319921992199219921992

    61.565.3199371.11993199319931993

    61.41994199419941994199419941994

    61.11995199519951995199519951995

    60.91996199619961996199619961996

    60.91997199719971997199719971997

    60.964.1199819981998199819981998

    199919991999199968.3199919991999

    20002000200020002000200065.162.8

    20012001200120012001200120012001

    200265.2200220022002200220022002

    &A

    Page &P

    Dikhanov-Ward

    Bourgignon-Morrison

    Milanovic

    Dowrick-Akmal

    Sala-i-Martin

    Chotikapanich-Val.-Rao

    Bhalla

    Sutcliffe

    Sheet2

    Sheet3

    Sheet4

    Sheet5

    Sheet6

  • Global (concept 3) distribution is not well approximated by theoretical lognormal distribution

  • 3. Importance of differences between countries mean incomes

  • Composition of global inequality changed: from being mostly due to class (within-national), today it is mostly due to location (where people live; between-national)18702000Based on Bourguignon-Morrisson (2002) and Milanovic (2005)

  • A literary comparison: Elizabeths dilemma1820 position estimates based on Colquhoun 1801-3 data. 2000 data from LIS, and for 0.1% from Piketty (Data-central).

  • Share of between-country inequality in total inequality

  • 4. Global inequality (cont.)

  • A 90-10 world: fifty-fifty

  • What is a Gini of 64-66; how big is it?

  • twoway (line Y02_c group if contcod=="BRA") (line Y02_c group if contcod=="IDN-R") (line Y02_c group if contcod=="DEU") (line Y02_c group if contcod=="LKA") (line Y02_c group if contcod=="CHN-U"), legend(off) xtitle(country vent> ile) ytitle(percentile of world income distribution) text(90 3 "Germany") text(62 5 "urban China") text(50 6 "Brazi l") text(52 12 "Sri Lanka") text(40 18 "rural India")

    Germanyurban ChinaBrazilSri Lankarural India020406080100percentile of world income distribution05101520country ventileYear 2002

  • NoteNot even richest people in rural Indonesia intersect with poorest people in Germany Very little overlap between people in Sri Lanka and GermanyBut this is not true for Brazil and Russia: about a quarter of the population is better off than the poorest decile in Germany Important later for rules re. global transfers

  • Poor and rich people and countries, 1998

  • 5. Globalization, policy convergence and income divergence

  • Causal effect of globalization (openness) on global inequalityChannel 1. Different effect on within-national income distributions (difference between poor and rich countries; HOS and revisions)Channel 2. Different effect on growth rates of poor and rich countries (the openness premium should be higher for poor countries)Channel 3. Different effect on populous and small countriesDepends on history: are populous countries rich or poor at a given point in time?

  • Assume globalization is good for for poor, populous countries, no effect on within-national distributionIn the current constellation, India and China grow faster => global inequality (mean income convergence, lower global inequality)Decouple poor and populous; let China and India be richNo change in individual effects of gloablization; mean convergence continues but global inequality may now go Conclusion. Even if effects are known and unchanged, the outcome may differ.

  • 6. Does Global Inequality Matter?

  • No one in charge of it; there is no global governmentNo one can do much about itNo global taxation authority

  • Does global inequality matter? NO, according to Ann Krueger (2002):

    Poor people are desperate enough to improve their material conditions in absolute terms rather than to march up the income distribution. Hence it seems far better to focus on impoverishment than on inequality.

  • YES, according to Kuznets (1954)reduction of physical misery associated with low income and consumption levelspermit[s] an increaseof political tensions BECAUSE

    the political misery of the poor, the tension created by the observation of the much greater wealth of other communitiesmay have only increased.

  • What may be the effects of global inequality?Globalization increases awareness of differences in living standards (aspiration level changes; empirical studies show it)Leads to migrationGreater likelihood of conflict (Jennifer Government)

  • We need some rules for global transfersThey should flow from a rich to a poor country. That is easy.But they have to satisfy the same rules as at the national level, i.e. transfers should be globally progressive, that is flow from a richer person to a poorer person.

  • In addition transfers have national income inequality implicationsProgressive transfer at the global level and worsening national distributions (may not be politically sustainable)

  • Thus transfers have to satisfyProgressivity 1: reduce mean income differences between rich and poor countriesGlobal progressivity: tax payers should be richer than beneficiariesNational progressivities: in rich country, tax payers should be relatively rich (reduce rich country inequality) and in poor country, beneficiaries should be relatively poor (reduce poor country inequality)

  • Mechanism of global transfersTransfers are no longer from state to state, or from inter-state organization to a state, but from global authority to poor citizens regardless of where they live (=change in paradigm)A natural complement to global tax authority is relationship with (poor) citizens, not (poo