Several research articles on inequality

The Autumn 2019 issue of the journal Oxford Review of Economic Policy was a special issue on inequality. There were several good papers, which I just got around to reading. I'm not going to discuss them all in great detail, but here are a few things that I thought were interesting or important.

Thomas McGregor (IMF), Brock Smith (Montana State University), and Samuel Wills (University of Sydney) had an article on the measurement of inequality (sorry, I don't see an ungated version). They ask some very pertinent questions in the introduction:

Measuring inequality is therefore not straightforward because it first requires answering a series of questions. What variable do we care about? What population is the focus? And what properties of that variable’s distribution matter for our purposes, which we can summarize in a statistic? The answers to each of these questions will depend on the researcher’s purpose: there should be different measures, of different variables, for different goals.

In terms of variables, do we (or should we) care more about inequality in income, or wealth, or something else (wellbeing, perhaps?). In terms of population, should we worry more about global inequality, or inequality within each country? Global inequality makes sense, but it is only inequality within countries that we can effectively target with policy. Which is the best statistic to use to measure inequality is a huge can of worms that is probably best left to another post (or a series of posts).

Brian Nolan and Luis Valenzuela (both University of Oxford) have an article on the change in country-level inequality over time (sorry, no ungated version). In terms of changes over time, it is interesting to note that over the period from 1980 to 2007, New Zealand's inequality grew only slightly more than the OECD average that Nolan and Valenzuela report (although, it is worth noting, that the increase in inequality in New Zealand was heavily concentrated in the late 1980s and early 1990s - see for example this post). I particularly liked this bit from their conclusion:

The ‘grand narrative’ that a sustained rise in income inequality is driving stagnating real incomes around and below the middle, exacerbating social ‘bads’, and fuelling ‘revolt against the elites’ probably comes closer to reflecting the experience of the US than many other rich countries, but is not the whole story even there. More to the point, the US case is not representative of the experience of rich countries with respect to inequality and income growth over recent decades, which has been much more varied than this ‘grand narrative’ recognizes.

We see far too much of that 'grand narrative' in New Zealand, where it simply isn't true. This is a point that I try to hammer home in my ECONS102 class.

In terms of global inequality, Ravi Kanbur (Cornell University) has an article (ungated earlier version here) and he makes the case (in contrast to the policy-based argument above in favour of looking at country-level inequality) that:

...a country-by-country analysis, while important for establishing the basic facts, is incomplete for a world where countries are ever more knitted together by trade and investment and where, perhaps, our common humanity calls for an assessment of global inequality rather than national inequality in isolation.

He shows the (by now hopefully well known) fact that global inequality has been falling (see this post for example, or this one):

What explains this global trend of falling inequality? It is helpful to go back to the notion that world inequality is composed of inequality between nations and inequality within nations. Inequality between nations, that part of global inequality brought about by difference in average incomes of rich and poor countries, accounts for the bulk of global inequality... What happened between 1988 and 2008 (and, indeed, over the longer period of globalization before and after this period) is that poorer counties like India, China, and Vietnam grew much faster than rich countries like the US. The effect on between-nations inequality was so great that global inequality fell.

On policy, he concludes that:

We are thus left with the conundrum that addressing national-level inequality through national policies will be less effective unless cross-national agreements can be reached on a range of tax and investment issues. The weakness of global institutions in addressing these questions is surely another sense in which we are living in an age of rising inequality. 

Finally, Davide Furceri and Jonathan Ostry (both IMF) have an article where they analyse the factors associated with country-level inequality (sorry, no ungated version), using a model averaging approach. They first note that:

The list of potential drivers of inequality includes, among others, the level of economic development, macroeconomic policies, structural reforms, and structural features such as demographics, technology, or institutions.

They then find that:

...there is not just one single factor that is the main robust driver of the level of inequality and its evolution, in contrast to what is sometimes alleged (with technology or trade looming large as possible mono-causal culprits). In the cross-section, we find that the level of development and demographics, as well as unemployment and globalization, play key roles. Interestingly, the effects of trade and financial globalization go in opposite directions, as inequality drivers. While trade globalization is associated with lower inequality, particularly in developing economies, financial globalization is associated with higher inequality.

It is particularly interesting to me that they find trade is associated with lower inequality. I'll have another post on that topic in the near future, relating to research with one of my PhD students.

If you are interested in inequality, and you have access to this journal, there is a lot of good information to be had from these four articles, as well as the others in the same special issue.