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Determinants of cross-country income inequality : an augmented Kuznets hypothesis

Author

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  • Milanovic, Branko
  • DEC

Abstract

Why does income inequality differ among countries? Using a sample of 80 countries from the 1980s, the author shows that two types of factors explain variations in income inequality. The first are factors that are, in the short term, independent of economic policies and are included in the standard formulation of the Kuznets'curve: the level of per capita income and the country's regional heterogeneity. From the viewpoint of economic policy, these are"given"factors, resulting in a"given inequality."The second group of factors are the social-choice factors reflected in the sizeof social transfers and of state sector employment, both of which reduce inequality. For this sample, the reduction amounts to about a quarter of"given"inequality. The importance of social-choice factors rises as the level of income rises. The divergence between actual inequality and the inequality predicted by the standard Kuznets'curve therefore systematically widens as a society develops. This discrepancy is systematic, the author contends. Inequality in richer societies decreases not only because of economic factors but also because societies choose less inequalities as they grow richer.

Suggested Citation

  • Milanovic, Branko & DEC, 1994. "Determinants of cross-country income inequality : an augmented Kuznets hypothesis," Policy Research Working Paper Series 1246, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1246
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    Cited by:

    1. Çağatay Bircan & Tilman Brück & Marc Vothknecht, 2017. "Violent conflict and inequality," Oxford Development Studies, Taylor & Francis Journals, vol. 45(2), pages 125-144, April.
    2. Djavad Salehi-Isfahani, 2009. "Poverty, inequality, and populist politics in Iran," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 7(1), pages 5-28, March.
    3. Deepa Menon Choudhary & Amit Garg & P.R Shukla, 2009. "Assessing Policy Choices For Managing SO2 Emisions From Indian Power Sector," Working Papers id:1957, eSocialSciences.
    4. César Calderón & Luis Servén, 2004. "The Effects of Infrastructure Development on Growth and Income Distribution," Working Papers Central Bank of Chile 270, Central Bank of Chile.
    5. Branko Milanovic & Mark Gradstein & Yvonne Ying, 2003. "Democracy, Ideology And Income Inequality: An Empirical Analysis," Public Economics 0305002, EconWPA.
    6. Calderon, Cesar & Serven, Luis, 2008. "Infrastructure and economic development in Sub-Saharan Africa," Policy Research Working Paper Series 4712, The World Bank.
    7. Moradi, Alexander & Baten, Joerg, 2005. "Inequality in Sub-Saharan Africa: New Data and New Insights from Anthropometric Estimates," World Development, Elsevier, vol. 33(8), pages 1233-1265, August.
    8. Valerie Koechlin & Gianmarco Leon, 2007. "International Remittances and Income Inequality: An Empirical Investigation," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 10(2), pages 123-141.
    9. Bowman, Kirk S., 1997. "Should the Kuznets effect be relied on to induce equalizing growth: Evidence from post-1950 development," World Development, Elsevier, vol. 25(1), pages 127-143, January.
    10. Souza, Pedro H.G.F., 2013. "The Decline in Inequality In Brazil, 2003-2009: The Role Of The State," Institute for Research on Labor and Employment, Working Paper Series qt33q062zj, Institute of Industrial Relations, UC Berkeley.
    11. Oyvat, Cem, 2016. "Agrarian Structures, Urbanization, and Inequality," World Development, Elsevier, vol. 83(C), pages 207-230.
    12. Amit Garg & P.R. Shukla & Debyani Ghosh & Manmohan Kapshe & Nair Rajesh, 2003. "Future Greenhouse Gas and Local Pollutant Emissions for India: Policy Links and Disjoints," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 8(1), pages 71-92, March.
    13. Gustavo A. Marrero & Juan Gabriel Rodríguez, 2010. "Inequality of opportunity in Europe: Economic and policy facts," Working Papers 172, ECINEQ, Society for the Study of Economic Inequality.
    14. Acar, Sevil & Dogruel, Fatma, 2012. "Sources of inequality in selected MENA countries," Structural Change and Economic Dynamics, Elsevier, vol. 23(3), pages 276-285.
    15. Tiago Neves Sequeira & Marcelo Santos & Alexandra Ferreira-Lopes, 2017. "Income Inequality, TFP, and Human Capital," The Economic Record, The Economic Society of Australia, vol. 93(300), pages 89-111, March.
    16. Ales Bulir & Zuzana Brixiova, 2001. "Growth Slowdown in Bureaucratic Economic Systems; An Issue Revisited," IMF Working Papers 01/6, International Monetary Fund.
    17. ALi Abdel Gadir Ali, "undated". "Poverty in the Arab Region: A Selective Review," API-Working Paper Series 0402, Arab Planning Institute - Kuwait, Information Center.
    18. Frances Stewart, 2003. "Income distribution and development," Chapters,in: Trade and Development, chapter 10 Edward Elgar Publishing.
    19. Maëlan LE GOFF & Christian EBEKE, 2009. "Why Migrants' Remittances Reduce Income Inequality in some Countries and not in Others?," Working Papers 200919, CERDI.
    20. Ali Abdel Gadir Ali, "undated". "Can the Sudan Reduce Poverty by Half by the Year 2015?," API-Working Paper Series 0304, Arab Planning Institute - Kuwait, Information Center.
    21. Gradstein, Mark & Milanovic, Branko & Ying, Yvonne, 2001. "Democracy and income inequality : an empirical analysis," Policy Research Working Paper Series 2561, The World Bank.
    22. Djavad Salehi-Isfahani, 2006. "Revolution and redistribution in Iran: poverty and inequality 25 years later," Working Papers e06-3, Virginia Polytechnic Institute and State University, Department of Economics.

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