International Transfers

In principle, underprovision of public goods can be overcome by collective action. Against the background of intra-country income inequality, supporting low and middle-income countries seems a plausible policy option to cope with shortcomings. Even if there is no general agreement whether or not inequality has increased in recent years – Sala-i-Martin (2002) finds a decrease while Milanovic (2005) and Dikhanov (2005) estimate an increase – the substantial magnitude of inequality is not in doubt. Calculations using the most recent dataset of the International Comparison Program (ICP) show a significant higher global inequality than previous estimates based on the World Development Indicators (WDI) (Milanovic 2007, p. 4). In contrast to the World Bank which calculated a global Gini coefficient of 0.55 for the year 2005, inequality is now estimated at 0.57 (Milanovic 2007, p. 6). Moreover, this increase is even higher when unequal population sizes between countries are considered. If those are taken into account by weighting each country by its population, latest calculations show that inequality is 0.57 compared to previous appraisals of 0.51 (Milanovic 2007, p. 6). A large part of this increased diversity results from new estimations of prices and thus of the real per capita gross domestic product (GDP) for China and India, two of the most populous economies worldwide (Milanovic 2007, pp. 1–3). A global Gini coefficient of 0.57 indicates a large inequality when it is compared with, e.g. the Ginis of Brazil (0.57) and South Africa (0.58) which are two of the most unequal countries worldwide (UNDP 2007a, Table 15). In addition, a more intuitive understanding of the extent of inequality can be obtained by comparing the average income received by the top decile, which is ranked by a country’s per capita GDP, with that of the bottom decile. Milanovic (2007, p. 6), for example, finds that the top-to-bottom ratio was 39 to 1 in 2005.