Decomposing World Income Distribution : Does the World Have a Middle Class?

In Asia inequality in income between countries is more important than inequality within countries. In Africa, Latin America, and Western Europe and North America, by contrast, there are only small differences between countries; inequality within countries is more important. And when countries are divided into three groups by income level, there is little overlap - very few people in developing countries have incomes in the range of those in the rich countries. Using national income and expenditure distribution data from 119 countries, Milanovic and Yitzhaki decompose total income inequality between the individuals in the world, by continent and by "region" (countries grouped by income level). They use a Gini decomposition that allows for an exact breakdown (without a residual term) of the overall Gini by recipients. Looking first at income inequality in income between countries is more important than inequality within countries. Africa, Latin America, and Western Europe and North America are quite homogeneous continents, with small differences between countries (so that most of the inequality on these continents is explained by inequality within countries). Next the authors divide the world into three groups: the rich G7 countries (and those with similar income levels), the less developed countries (those with per capita income less than or equal to Brazil's), and the middle-income countries (those with per capita income between Brazil's and Italy's). They find little overlap between such groups - very few people in developing countries have incomes in the range of those in the rich countries. This paper - a product of tPoverty and Human Resources, Development Research Group - is part of a larger effort in the group to study inequality and income redistribution