Income Distribution
The income measures discussed above all report average per capita income
levels for the different groups of countries. However, the way that income is
distributed within a country may have a very substantial impact on overall living
standards. People living in a low-income country where income is relatively well
distributed may have a better quality of life overall than those living in a higherincome country where much of the income goes to a small segment of the population
and where most people have income levels below those available to people living in
countries with lower average per capita incomes.
Individuals have different skills, aptitudes, histories and conditions; these may
have a substantial impact on income distribution patterns. Nevertheless, social and
political relationships can also have an effect – directly or indirectly – on income
distribution. Arguably, income patterns can be influenced by public policy, including
efforts to improve skills and productivity and to expand opportunities for a
population. Many analysts would view steps taken in those direction to have a
positive effect on development.11
CRS-8
12It is also called the Gini coefficient or Gini ratio.
13 For example, see Amartya Sen, “The Concept of Development,” in Hollis Chenery and
T.N. Srinivasan (eds.) Handbook of Development Economics, vol. 1. Amsterdam: NorthHolland, 1986, chapter 2. However, some others believe that income distribution is not an
important concern. See, for instance: Danny Quah and S. Durlauf, The New Empirics of
Economic Growth. London: London School of Economics and Political Science, Center for
Economic Performance, 1998.
14The principal focus here is on income and consumption equality. However, when
discussing the relationship between inequality and growth, two other types – asset inequality
and social/political inequality have also been found to have significant consequences.
Political inequality is discussed below. A common example of changes in asset inequality
is the redistribution of land which took place in East Asia following independence from
collonialism and its major contribution to that region’s good economic performance.
15 See, for example: N. Heston and R. Summers, “The PennWorld Table (Mark 5): An
Extended Set of International Comparisons, 1950-88.” Quarterly Journal of Economics, v.
106 (1991), pp 327-68.
16See, for example: G. Mankiw, D. Romer and David Weil, “A Contribution to the Empirics
of Economic Growth.” Quarterly Journal of Economics, v. 107 (1992), pp. 407-38.
17There is a substantial literature supporting both views. Nevertheless, it should be noted
(continued...)
Gini Index. To measure the overall pattern of income within a country,
economists use a statistical measure called a “Gini index.”12 According to this
measure, a country would have a Gini index of zero if income were distributed with
perfect equality; it would have a Gini index of 100 if income were distributed with
perfect inequality. Starting with the lowest income individuals or households, the
analysis determines what share of the overall national income accrues to the bottom
10% (decile) of the population. The same assessment is done for the other nine
deciles of the population. Much attention is often paid to the share of total national
income accruing to the top and bottom 10% of the population. However, the
distribution pattern for the middle portions of the population is also very important.
Table 1 in the Appendix shows the Gini index for many countries. Many analysts
believe that the distribution pattern is an important indicator of real income levels as
well as indicator of the country’s overall stability and cohesion. 13
Discussion. Many popular discussions tend to mix together the issues of
poverty reduction and inequality reduction. They are related but distinct concepts.
Many analysts contend that income inequality will increase during the earlier stages
of the growth process but will diminish as countries achieve higher levels of per
capita income.14 Poverty levels, by contrast, tend to fall as national income levels
rise.15 Many economists believe that growing inequality may be a function of the
development process, as rewards accrue unevenlyto individuals based on their socioeconomic situation, their skills and functions and their degree of participation.
Income distribution seems to broaden as countries become more wealthy. There is
disagreement, though, whether this is due more to economic or to public policy
considerations. Many believe that economic growth can be enhanced and sustained
(as seen in many middle- and higher-income countries) when income is distributed
more broadly and more people participate and benefit from the process.16 17
CRS-9
17(...continued)
that the data in Table 1 cast doubt on both propositions. Overall, as suggested above,
middle-income countries seem to have higher levels of income disparity than do countries
above or below them on the income ladder. (The data are not adjusted for population
growth.) However, the disparities among the countries in each group are greater than the
differences among the groups, so it is hard to discern a cross-national trend. Likewise, as
proposed above, it appears that many middle-income countries experienced faster rates of
growth during the 1990s than did low-income countries. Some low-income countries grew
faster, though, than did some middle- or high-income countries. Growth occurred in
countries with both high and low levels of income disparity. Growth rates were not higher
for countries at the top end of the income scale as income distribution patterns widened.
The relationships discussed in the literature may be true within countries and among some
countries over time. They are less evident, however, in the current inter-country data.
18 See, for example: A. Banerjee and A. Newman, “Occupational Choice and the Process of
Development.” Journal of Political Economy, v. 101 (1993), pp. 274-298.
It is difficult to discern a direct relationship between income distribution and
countries’ levels of per capita income. For example, as seen in Table 1, the United
States, China, Turkmenistan, Ghana, Cambodia and Ethiopia all have essentially the
same Gini score, despite major differences in their levels of development. The
relationships between economic growth, average per capita income and income
distribution are subtle. In the long run, economic growth will improve average levels
of per capita income. However, the relationship between growth and income
distribution is less clear. By itself, growth does not seem to have a clear positive
impact on income distribution patterns.
