NCPA - National Center for Policy Analysis

World Income Inequality and Poverty Are In Decline

April 1, 2015

Much of the current discussion assumes income inequality is rising, painting a gloomy picture of the rich getting richer while the rest of the world lags further and further behind.

We can get a comprehensive picture of what is happening to the rich and the poor by looking at recent empirical data.

  • Prior to the second world war, up to 18 percent of all income received by Americans went to the richest 1 percent. The share of the top 1 percent then dropped substantially, increasing again in the early 1980s until it returned to its 1939 level. After a decline in the past, inequality is now on the rise.
  • In a number of equally wealthy European countries, and in Japan, the income share of the rich reached a low point in the 1970s, but then, rather than bouncing back up to previous levels, it remained flat or increased only modestly.
  • Two centuries ago, the share of the world's population living in absolute poverty was estimated to be around 90 percent.

The reality of difference trends suggests it is not global forces that shape the distribution of incomes, but the country-specific institutional and political framework.

Progressive taxation does a great deal to narrow the gap between rich and poor: in the US, 37 percent of the total sum of income tax is paid by the top 1 percent, while less than 3 percent is paid by the bottom 50 percent. Redistribution through taxes and transfers reduces inequality considerably. However, inequality in market and disposable income are steadily increasing in the US, and compared to similarly wealthy countries, the US redistributes comparatively less.

The rapid growth in formerly poor countries changed the world income distribution dramatically. The bimodal distribution of very high inequality across countries in 1970 has changed into a unimodal distribution of lower inequality today. The latest research shows that the Gini index for global inequality has fallen from 72.2 in 1988 to 70.5 in 2008.

Source: Max Roser, "Income inequality: poverty falling faster than ever but the 1% are racing ahead," The Guardian, March 27, 2015.

 

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