The Bottom Twenty: An Analysis Of Income Inequality In High Income And Developing Countries, 1990-2010

The theory that there is a link between income inequality and per capita income has variously been proposed with strong convictions. The theory generally presupposes that income inequality, where or when exists, will ultimately decline as macroeconomic performance (growth) improves over time. Using empirical analysis, econometric models, and time series data from 1990 to 2010, this paper finds that though the relationship between income inequality and per capita income may be theoretically valid for a variety of countries at different levels of economic growth, the relationship may not be statistically significant. Contrary to the inverted-U hypothesis, the empirical evidence suggests that distributive trends may not be sustainable and that institutional variables and policies might have more explanatory power over the subsequent trajectory of income inequality in rich and poorer countries.