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Homogeneous middles vs. heterogeneous tails, and the end of the ‘Inverted-U’: the share of the rich is what it's all about

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  • Palma, J.G.

Abstract

This paper examines the current global scene of within-nations distributional disparities. There are three main conclusions: first, that the statistical evidence for the ‘upwards’ side of the “Inverted-U” between inequality and income per capita seems to have vanished, as many lowand low-middle income countries now have a distribution of income similar to that of most middle-income countries (other than those of Latin America and Southern Africa). That is, half of Sub-Saharan Africa and many countries in Asian, including India, China and Vietnam, now have an income distribution similar to that found in North Africa, the Caribbean and the secondtier NICs. And this level is also similar to that of half of the first-tier NICs, the Mediterranean EU and the Anglophone OECD (excluding the US). As a result, about 80% of the world population now live in countries with a Gini around 40. So, the pre-globalisation statistical evidence for the hypothesis that posits that (for whatever reason) from a distributional point of view “things have to get worse before being able to get better” is rapidly drawing to a close. Second, that among middle-income countries it is only Latin America and Southern Africa that are living in an inequality limbo of their own. And third, that within an overall trend of rising inequality, there are two opposite distributional forces at work. One is ‘centrifugal’, and takes place at the two tails of the distribution—leading to an increased diversity across country in the shares appropriated by the top 10 percent and bottom forty percent. The other is ‘centripetal’, and takes place in the middle—leading to a remarkable uniformity across countries in the share of income going to the half of the population located between deciles 5 to 9. Therefore, globalisation is creating a situation where virtually all the within-nation distributional differences are the result of what the very rich and the poor are able to appropriate. In turn, it seems that regardless of the political settlement at work current distributional outcomes are characterised by half of the population (located in the middle and upper-middle of the distribution) acquiring strong ‘property rights’ over half of the national income. The other half, however, seems to be increasingly up for grabs between the very rich and the poor. And if what really matters in distributional terms is the income-share of the rich—because the rest ‘follows’ (middle classes able to defend their shares, and workers with ever more precarious jobs in ever more ‘flexible’ labour markets)—everybody attempting to understand the within-nations disparity of inequality (including myself) should always be reminded of this basic distributional fact following the example of Clinton’s campaign strategist: by sticking a note in our notice boards saying “It is the share of the rich, stupid”.

Suggested Citation

  • Palma, J.G., 2011. "Homogeneous middles vs. heterogeneous tails, and the end of the ‘Inverted-U’: the share of the rich is what it's all about," Cambridge Working Papers in Economics 1111, Faculty of Economics, University of Cambridge.
  • Handle: RePEc:cam:camdae:1111
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    1. Moreno-Brid, Juan Carlos & Ros, Jaime, 2009. "Development and Growth in the Mexican Economy: An Historical Perspective," OUP Catalogue, Oxford University Press, number 9780195371161.
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    Keywords

    Inequality; poverty; income polarisation; Latin America; South Africa; US;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • N30 - Economic History - - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy - - - General, International, or Comparative
    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General

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