World Inequality Report 2018

Economic inequality is widespread and has been growing since the 1980s, calling economic growth policies around the world into question, according to new research from the World Inequality Lab. The study findings are detailed in the first World Inequality Report. The full report is available in English, but the 20-page summary is available in 8 languages: English, French, Spanish, German, Russian, Arabic, Hindi and Chinese - wir2018.wid.world The research relies on the most extensive database on the historical evolution of income and wealth inequality. It aims to contribute to a more informed global democratic debate on economic inequality by bringing the most up-to-date and comprehensive data to the public discussion. The report was coordinated by economists Facundo Alvaredo, Lucas Chancel, Thomas Piketty, Emmanuel Saez and Gabriel Zucman. Thomas Piketty, coordinator of the report, stressed: "For the first time ever, this report examines how global growth has been shared among individuals in the entire world since the 1980s, with a particular focus on emerging countries where inequality data had previously been sparse or nonexistent." The primary research findings indicate that income inequality has increased in nearly all world regions in recent decades, though at different speeds, highlighting the important roles of governments to mitigate inequality. Since 1980, income inequality has increased rapidly in North America, China, India, and Russia, while growing moderately in Europe. However, there are exceptions to this pattern: in the Middle East, sub-Saharan Africa, and Brazil, income inequality has remained relatively stable, at extremely high levels. Lucas Chancel, general coordinator of the report, emphasized: "The fact that inequality trends vary so greatly among countries, even when countries share similar levels of development, highlights the important role of national policies in shaping inequality. For instance, consider China and India since 1980: China recorded much higher growth rates with significantly lowerinequality levels than India.  The positive conclusion of the World Inequality Report is that policy matters, a lot." The report also reveals the dramatic decline in the net wealth of governments over the past decades and the challenges this poses for tackling inequality. Based on the data, the report discusses promising options to tackle income and wealth inequality—starting with the importance of economic data transparency. Gabriel Zucman, coordinator of the report, said: "The establishment of a global financial registry to record the ownership of financial assets would deal severe blows to tax evasion and money laundering, and would enhance the effectiveness of progressive taxation, which is an essential tool in reducing economic inequality." The report stresses the need for more ambitious policies to democratize access to education and well-paying jobs in rich and emerging countries alike. Public investments in health and environmental protection are also necessary to empower younger generations. To finance these investments in the future, capital taxes on the wealthiest or debt relief have regularly been used by governments throughout history.

Key results of the report include the following

- Strikingly, since 1980 the richest 1% captured twice as much as the poorest 50% of the world's population. In other terms, since 1980, 27% of all new income generated worldwide were captured by the richest 1%, while the poorest 50% of the world's population captured only 13% of total growth. These figures are brought into sharp contrast considering the top 1% currently represents 75 million individuals while the bottom 50% represents 3.7 billion individuals. The population in between, largely comprised of lower- and middle-income earners in North America and Europe, experienced sluggish or even zero income growth rates. - Since 1980 there have been large shifts in the ownership of capital. Who owns this capital is crucial in determining inequality. Net private capital--the assets of individuals minus their debts--has risen enormously in recent decades, but conversely, net public capital--the assets of governments minus their debts--has declined in nearly all countries since the 1980s due to large scale privatizations and rising public debts. Public capital is now approaching or below zero in rich countries. This exceptional situation by historical standards has strong implications on policy. In particular, it becomes extremely challenging for governments to invest in education, healthcare or environmental protection. - Wealth inequality among individuals also increased sharply since 1980. Significant increases in top wealth shares have been experienced in China and Russia following their transitions from communism to more capitalist economies. The top 1% wealth share doubled in both China and Russia between 1995 and 2015, from 15% to 30% and from 22% to 43%, respectively. Emmanuel Saez, coordinator of the report, stressed: "The combination of privatizations and increasing income inequality has fueled the rise of wealth inequality—within countries and at the global level, private capital is increasingly concentrated among a few individuals. This rise was extreme in the U.S., where the share of wealth held by the top 1% rose from 22% in 1980 to 39% in 2014." - Global income and wealth inequality will steadily rise if countries continue to follow the same trajectory they have been on since 1980, despite strong growth in emerging countries. By 2050, the share of global wealth held by the world's 0.1% richest (representing 7.5 million individuals today) be equal to that of the middle class (3 billion individuals). - However, rising global inequality is not inevitable in the future and limiting it will have tremendous impacts on global poverty eradication. If all countries follow the same inequality trend as Europe since 1980, the incomes of the bottom half of the world population could rise from €3 100 in 2017 to €9 100 in 2050. Alternatively, if countries were to follow the U.S. trend, the incomes of the bottom 50% would rise to just €4 500 by 2050. The data presented in the report combines in a systematic and transparent manner all available economic data sources, including household surveys, tax receipts, and income and wealth national accounts (including offshore leaks, when available). This enterprise relies on the analysis of more than 175 million data points on inequality. Facundo Alvaredo, coordinator of the report, said: “This enterprise relies, in one way or another, on the inequality statistics collected in WID.world −The World Wealth and Income Database− since its inception as the World Top Incomes Database in 2011. These databases would not have been possible without the cooperation of more than 100 researchers around the world.”

World Inequality Report 2018 Highlight

More about WID.world

WID.world relies on the combined effort of an international network of over a hundred researchers from all continents... Read More › The World Wealth and Income Database is funded by public and non-profit institutions... Read More › WID.world aims to provide open access to the most extensive available database on the historical evolution of the world distribution of income and wealth... Read More ›

World Economics: Making Data Measurement Errors Transparent: The Case of the IMF

In 1950 Morgenstern pointed out that absolute precision and certainty are impossible in economic observations, but estimates are often hampered by a substantial degree of measurement error. Unlike the natural sciences, economists in general do not report measurement errors for the key concepts such as prices, value or production that it seeks to define, measure and explain. For most macroeconomic concepts two approaches are available: the Implicit Minimal Measurement Error and the Maximum Ratio.

Studying different vintages of the IMF World Economic Outlook data base it was found that the estimates on average have an implicit minimal measurement error of 4.3% and maximum ratio of 17.9%. An agenda is proposed for removing disincentives (creating incentives) for stakeholders (academics, data collectors and producers) since reporting measurement error will result in better research, better policy and ultimately better data.

Making Data Measurement Errors Transparent: The Case of the IMF in World Economics

Cryptocurrencies that are money

"Central Bank Cryptocurrencies" 
BIS Quarterly Review September 2017

MORTEN L. BECH, Bank for International Settlements (BIS) - Committee on Payments and Market Infrastructures
Email: morten.bech@bis.org
RODNEY GARRATT, University of California Santa Barbara
Email: garratt@ucsb.edu

New cryptocurrencies are emerging almost daily, and many interested parties are wondering whether central banks should issue their own versions. But what might central bank cryptocurrencies (CBCCs) look like and would they be useful? This feature provides a taxonomy of money that identifies two types of CBCC - retail and wholesale - and differentiates them from other forms of central bank money such as cash and reserves. It discusses the different characteristics of CBCCs and compares them with existing payment options. 

Book pp. 73-74

SDGs and income inequality

The new global targets for development, the Sustainabe Development Goals, do not consider income inequality although the SDGs pay some lip service. This new and exciting edited volume published by Edward Elgar provides an overview of the state of the art, including the often forgotten issue of how to measure progress regarding a more inclusive development of Earth

earnings inequality 1970-2015

"Global Earnings Inequality, 1970-2015" 
CEPR Discussion Paper No. DP12019

OLLE HAMMAR, Uppsala University - Department of Economics, Research Institute of Industrial Economics (IFN)
Email: olle.hammar@nek.uu.se
DANIEL WALDENSTRÖM, Uppsala University - Department of Economics, Research Institute of Industrial Economics (IFN)
Email: daniel.waldenstrom@nek.uu.se

We estimate trends in global earnings dispersion across occupational groups using a new database covering 66 developed and developing countries between 1970 and 2015. Our main finding is that global earnings inequality has declined, primarily during the 2000s, when the global Gini coefficient dropped nearly 10 points and the earnings share of the world's poorest half doubled. Decomposition analyses emphasize the role of income convergence between poor and rich countries and that earnings have become more similar within occupations in traded industries. Sensitivity checks show that the results are robust to varying real exchange rates, inequality measures and population definitions.

Book pp. 67-71

Global factors and inflation

"Global Inflation: The Role of Food, Housing and Energy Prices"

     ECB Working Paper No. 2024

 

  Contact:  MILES PARKER

              Reserve Bank of New Zealand

    Email:  miles.parker@bankofengland.co.uk

Auth-Page:  https://ssrn.com/author=1051383

 

Full Text:  https://ssrn.com/abstract=2923137

 

ABSTRACT: This paper studies the role of global factors in causing common movements in consumer price inflation, with particular focus on the food, housing and energy sub-indices. It uses a comprehensive dataset of 223 countries and territories collected from national and international sources. Global factors explain a large share of the variance of national inflation rates for advanced countries ─ and more generally those with greater GDP per capita, financial development and central bank transparency ─ but not for middle and low income countries.

Common factors explain a large share of the variance in food and energy prices.

Book, pp. 29-32

Global data shadow economy 1991-2015

"Shadow Economies Around the World: New Results for 158 Countries Over 1991-2015" 
CESifo Working Paper Series No. 6430

LEANDRO MEDINA, George Washington University - Department of Economics, International Monetary Fund (IMF) - Western Hemisphere Department
Email: leandrom@gwu.edu
FRIEDRICH SCHNEIDER, Johannes Kepler University Linz - Department of Economics, CESifo (Center for Economic Studies and Ifo Institute for Economic Research), Institute for the Study of Labor (IZA)
Email: friedrich.schneider@jku.at

Using the MIMIC method, this paper is a first attempt to estimate the size of the shadow economy of 158 countries over the period 1991 up to 2015. In addition to performing a variety of robustness tests, this paper explicitly addresses endogeneity concerns to the use of GDP as cause and indicator, by using the light intensity approach as an indicator variable as proxy for the size of the economy. Results suggest that the average size of the shadow economy of these 158 countries over 1991-2015 is 32.5% of official GDP, which was 34.82% in 1991 and decreased to 30.66% in 2015.

Book p. 21

What is the World Bank Good for? Global Public Goods and Global Institutions

"What is the World Bank Good for? Global Public Goods and Global Institutions" 
CEPR Discussion Paper No. DP12090

RAVI KANBUR, Cornell University, Centre for Economic Policy Research (CEPR), IZA Institute of Labor Economics
Email: sk145@cornell.edu

The World Bank is in the doldrums, or worse. The Global Public Goods (GPGs) argument is often put forward as a way of reviving and even rescuing an institution whose financial base to support conventional sovereign loans is receding sharply relative to needs and competition from other sources. The World Bank does have certain advantages as an institution, which the global community could use to address GPG issues. It has technical excellence and convening power to help build consensus on a range of GPG issues, although this cannot be fully realized without radical reform of its governance structures. It has experience with managing concessional and grant resources, which will be central to financing GPG mechanisms. And it also has experience with country operations to implement the country specific dimensions of GPG mechanisms. That is what the World Bank is good for now, three quarters of a century after its founding 

Book: Chapter 13

Global Financial Safity Net 1960-2015

"What Do We Know About the Global Financial Safety Net? A New Comprehensive Data Set" 
CESifo Working Paper Series No. 6184

BEATRICE D. SCHEUBEL, European Central Bank (ECB), Ludwig Maximilian University of Munich - Center for Economic Studies (CES)
Email: scheubel@lmu.de
LIVIO STRACCA, European Central Bank (ECB)
Email: Livio.Stracca@ecb.europa.eu

This paper critically reviews the theoretical basis for the provision of the global financial safety net (GFSN) and provide a comprehensive database covering four elements of the GFSN (foreign exchange reserves, IMF financing, central bank swap lines and regional financing arrangements) for over 150 countries in the sample period 1960-2015. This paper also presents some key stylised facts regarding the provision of GFSN financing and compares macroeconomic outcomes in capital flow reversal episodes depending on how much GFSN financing was available to countries. Finally, this paper concludes with some avenues for further research on the possible evolution of the GFSN.