Top Incomes and the Measurement of Inequality in Egypt

In the aftermath of the global financial crisis, people’s awareness of income inequality has increased across the globe and this is sometimes at odds with income inequality measured with household surveys. This paradox is the most evident in Egypt, a country that experienced a revolution in 2011 partly motivated by calls for social justice and where income inequality measured by household surveys was low and declining during the decade that led to the revolution. A possible culprit of this anomaly is the poor measurement of top incomes. This paper exploits unprecedented access to household data and a combination of newly developed statistical methods designed to correct for top incomes biases to re-evaluate income inequality in Egypt. The paper finds a consistent and significant underestimation of the Gini inequality measure due to unit non-responses. The degree of underestimation is estimated at around 1.3 percentage points (confidence interval 1-2 percentage points), a finding robust to the different top incomes correction approaches proposed and to the use of income or expenditure measures. The Egyptian data follow rather closely the Pareto distribution and inequality corrected for top incomes biases remains low by regional and world standards.