National Income and its Distribution

Abstract

Does the distribution of income within a country become more equal as it grows richer? This paper uses plausibly exogenous variations in trade-weighted world income and international oil price shocks as instruments for within-country variations in countries' real GDP per capita to examine this issue for a large sample of advanced and developing countries. Our findings indicate that increases in national income have a significant moderating effect on income inequality: a one percent increase in real GDP per capita, on average, reduces the Gini coefficient by around 0.08 percentage points, a result that is robust across income levels, different time horizons, and alternative estimation techniques. From a policy perspective, our results suggest that education policies that promote equity and help individuals continue on to higher levels of education could help reduce income inequality.

Keywords: National income, Income distribution, Income inequality, Economic growth, Econometric models, inequality, growth, gini, gini coefficient, dependent variable, income growth, distribution of income, human capital, consumption expenditures, inequality data, descriptive statistics, poverty headcount ratio, world income inequality, inequality reduction, inequality-development relationship, explaining inequality, levels of inequality, changes in inequality, inequality-reducing effect, inequality relationship, growth-inequality relationship, kuznets curve, country inequality, intergenerational earnings mobility, inequality declines, inequality measures, growth pro-poor, government spending, redistr

JEL Classification: D31, O11, O15