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AfricaFocus Bulletin Editor's Note
"The divergence in inequality levels has been particularly extreme between Western
Europe and the United States, which had similar levels of inequality in 1980 but
today are in radically different situations. While the top 1% income share was close
to 10% in both regions in 1980, it rose only slightly to 12% in 2016 in Western
Europe while it shot up to 20% in the United States. Meanwhile, in the United States,
the bottom 50% income share decreased from more than 20% in 1980 to 13% in 2016." -
World Inequality Report, 2018
The first World Inequality Report, just released, represents sustained work by over
100 researchers to collect the best data available from multiple sources on income
and wealth inequality both within and between countries. The project is ongoing, and
the availability of data for different countries is very uneven. But for the first
time there is a common basis for comparison, and both data and analysis are available
to the public.
Notably, the project is also stressing the implications of the research for policy,
and exploring ways of presenting the data in user-friendly graphic formats. The
measures most often used are the percentage of national income (or wealth) held by
different percentile groups of the population. A striking regional comparison (see
graph below) highlights the percentage of national income received by the top 10% in 2016, from 37% in Europe to 61% in the Middle East. The percentage
held by the top 10% is 47% in North America, and around 55% in Brazil, India, and
sub-Saharan Africa. Not shown in this graph, but noted in a separate chapter and
available in the on-line database (http://wid.world/country/south-africa/),
the top 10% in South Africa received 65% of national income in 2012.
The report stresses that the levels of inequality are highly dependent on the
progressivity of tax policy, with the obvious implication that the Trump/Republican
tax bill will undoubtedly make inequality in the United States even more extreme.
The full database is available to access on-line or to download
at http://wid.world/data.
This AfricaFocus Bulletin contains excerpts from the executive summary of the report.
Another AfricaFocus Bulletin sent out today, and available at
http://www.africafocus.org/docs18/sa-us1801.php) contains excerpts from the
chapters on South Africa and the United States.
For previous AfricaFocus Bulletins on inequality, tax evasion, and related issues,
visit http://www.africafocus.org/intro-iff.php
Recent articles on closely related topics include:
++++++++++++++++++++++end editor's note+++++++++++++++++
Full report and abundant additional information available at
http://wir2018.wid.world/
We show that income inequality has increased in nearly all world regions in recent
decades, but at different speeds. The fact that inequality levels are so different
among countries, even when countries share similar levels of development, highlights
the important roles that national policies and institutions play in shaping
inequality.
Income inequality varies greatly across world regions. It is lowest in Europe and
highest in the Middle East.
Inequality within world regions varies greatly. In 2016, the share of total
national income accounted for by just that nation's top 10% earners (top 10% income
share) was 37% in Europe, 41% in China, 46% in Russia, 47% in US-Canada, and around
55% in sub-Saharan Africa, Brazil, and India. In the Middle East, the world's most
unequal region according to our estimates, the top 10% capture 61% of national income
(Figure E1).
In recent decades, income inequality has increased in nearly all countries, but
at different speeds, suggesting that institutions and policies matter in shaping
inequality.
Since 1980, income inequality has increased rapidly in North America, China, India,
and Russia. Inequality has grown moderately in Europe (Figure E2a). From a broad
historical perspective, this increase in inequality marks the end of a postwar
egalitarian regime which took different forms in these regions.
How has inequality evolved in recent decades among global citizens? We provide the
first estimates of how the growth in global income since 1980 has been distributed
across the totality of the world population. The global top 1% earners has captured
twice as much of that growth as the 50% poorest individuals. The bottom 50% has
nevertheless enjoyed important growth rates. The global middle class (which contains
all of the poorest 90% income groups in the EU and the United States) has been
squeezed.
At the global level, inequality has risen sharply since 1980, despite strong
growth in China.
Economic inequality is largely driven by the unequal ownership of capital, which can
be either privately or public owned. We show that since 1980, very large transfers of
public to private wealth occurred in nearly all countries, whether rich or emerging.
While national wealth has substantially increased, public wealth is now negative or
close to zero in rich countries. Arguably this limits the ability of governments to
tackle inequality; certainly, it has important implications for wealth inequality
among individuals.
Over the past decades, countries have become richer but governments have become
poor.
We project income and wealth inequality up to 2050 under different scenarios. In a
future in which "business as usual" continues, global inequality will further
increase.
Alternatively, if in the coming decades all countries follow the moderate inequality
trajectory of Europe over the past decades, global income inequality can be reduced--
in which case there can also be substantial progress in eradicating global poverty.
The global wealth middle class will be squeezed under "business as usual."
Tax progressivity is a proven tool to combat rising income and wealth inequality
at the top.
Research has demonstrated that tax progressivity is an effective tool to combat
inequality. Progressive tax rates do not only reduce post-tax inequality, they also
diminish pre-tax inequality by giving top earners less incentive to capture higher
shares of growth via aggressive bargaining for pay rises and wealth accumulation. Tax
progressivity was sharply reduced in rich and some emerging countries from the 1970s
to the mid-2000s. Since the global financial crisis of 2008, the downward trend has
leveled off and even reversed in certain countries, but future evolutions remain
uncertain and will depend on democratic deliberations. It is also worth noting that
inheritance taxes are nonexistent or near zero in high-inequality emerging countries,
leaving space for important tax reforms in these countries.
A global financial register recording the ownership of financial assets would
deal severe blows to tax evasion, money laundering, and rising inequality.
Although the tax system is a crucial tool for tackling inequality, it also faces
potential obstacles. Tax evasion ranks high among these, as recently illustrated by
the Paradise Papers revelations. The wealth held in tax havens has increased
considerably since the 1970s and currently represents more than 10% of global GDP.
The rise of tax havens makes it difficult to properly measure and tax wealth and
capital income in a globalized world. While land and real-estate registries have
existed for centuries, they miss a large fraction of the wealth held by households
today, as wealth increasingly takes the form of financial securities. Several
technical options exist for creating a global financial register, which could be used
by national tax authorities to effectively combat fraud.
More equal access to education and well-paying jobs is key to addressing the
stagnating or sluggish income growth rates of the poorest half of the
population.
Governments need to invest in the future to address current income and wealth
inequality levels, and to prevent further increases in them.
Public investments are needed in education, health, and environmental protection
both to tackle existing inequality and to prevent further increases. This is
particularly difficult, however, given that governments in rich countries have become
poor and largely indebted. Reducing public debt is by no means an easy task, but
several options to accomplish it exist--including wealth taxation, debt relief, and
inflation--and have been used throughout history when governments were highly
indebted, to empower younger generations.
AfricaFocus Bulletin is an independent electronic publication providing reposted
commentary and analysis on African issues, with a particular focus on U.S. and
international policies. AfricaFocus Bulletin is edited by William Minter.
AfricaFocus Bulletin can be reached at africafocus@igc.org. Please write to this
address to suggest material for inclusion. For more information about reposted
material, please contact directly the original source mentioned. For a full archive
and other resources, see http://www.africafocus.org
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