INTRODUCTION

As the world has become increasingly interconnected through trade, investment, migra­tion and communication, people’s interest in and knowledge of international compari­sons ofliving standards has grown.

Inequality is a broad concept, and the global distribution of income allows various inter­pretations. For this reason we start by clarifying different conceptions of the global distri­bution ofincome. The distribution of primary interest for us, and the subject of most of this chapter, is that among individuals in the world, each assigned his or her per capita house­hold income. This is what we will refer to as the global distribution ofincome. But other distributions of global income are also of interest for certain questions. Studies of economic growth and convergence, for instance, are based on changes in the distribution among countries of per capita national income, which is a type of global income distribution that is only indirectly related to the global distribution of income among individuals.

Because individuals around the world are naturally partitioned by country of residence, we examine the between-country and within-country components of global inequality, which can have different definitions depending on the inequality measure used.

Studying the global distribution of income raises difficult empirical and measurement issues. To compare real incomes across countries one needs to convert them using pur­chasing power parity (PPP) exchange rates, rather than market exchange rates, to take account of aggregate price differences between countries. There are different methods for calculating PPP exchange rates, which have their respective merits and are used by dif­ferent studies. All methods depend on the price surveys conducted by the International Comparison Program (ICP). In some cases those price surveys have themselves been controversial. We do not discuss PPP exchange rates in detail (q.v. Anand and Segal, 2008), but we highlight some of the features and controversies that are most relevant for studying the global distribution of income.

Another empirical controversy concerns the measurement of mean incomes within countries. Any global distribution of income must rely on national household surveys to estimate inequality within countries. But some studies, instead of using the mean incomes recorded by those surveys, have taken the relative distributions implied by them and “scaled” them to national accounts estimates of per capita GDP or household consump­tion expenditure. We argue that there is no good reason to scale to GDP, but that the use of household final consumption expenditure (HFCE) from the national accounts, which is available for most countries, may provide a useful robustness check. Using HFCE rather than the mean incomes from household surveys changes both the level and trend of estimated global inequality.

Beyond reviewing the conceptual and measurement issues underlying the study of the global distribution of income, the empirical aim of this chapter is to use the best available data to construct global distributions of income based on alternative plausible assump­tions. The main innovation is to supplement data from household surveys with newly available estimates of top income shares derived from tax data in a range of countries. These data constitute a significant advance in our understanding of the distribution of income both within countries and globally because individuals at the top of the income distribution are either not represented or are underrepresented in household surveys. Unsurprisingly, their inclusion leads to substantially higher estimates of global inequality.

The chapter continues as follows. Section 11.2 discusses the motivation for the study of global income inequality. Section 11.3 analyzes the different concepts of the global distri­bution of income. Section 11.4 discusses methodological issues and describes the available data, including the top income share data. Section 11.5 presents our constructed global dis­tributions of income and the corresponding estimates of global inequality. Section 11.6 decomposes global income inequality into between-country and within-country inequal­ity and discusses their significance and evolution. Section 11.7 examines the distinction between relative and absolute inequality and presents some preliminary estimates of absolute global inequality. Section 11.8 turns to the estimation of global poverty and con­siders its level, trends, and regional concentration. Section 11.9 concludes the chapter.

11.2.