Beyond Kuznets: Inequality and the size and distribution of cities

As countries develop the percentage of population living in urban areas tends to increase. As this happens, inequality is expected first to increase and then to decline in what is known as the Kuznets inverted‐U. But the literature has not paid much attention to differences in the absolute size of cities potentially affecting economy‐wide inequality. Building on insights from the urban economics literature, this paper studies the relationship between the size and distribution of cities and income inequality at country level. Results show that beyond Kuznets’ hypothesis there is a U‐shaped relationship between average city size and inequality; inequality first falls and then increases with average city size. This result is robust to a long list of controls, different estimation techniques, and identification strategies.