Inequality – long ignored – is now centre stage in debate about economic policy around the globe. This column introduces the Chartbook of Economic Inequality, a summary of long-run changes in economic inequality for 25 countries over more than 100 years.
Inequality – long ignored – is now centre stage in debate about economic policy around the globe. The 2007-2008 collapse of the global financial system and the subsequent economic downturn/debt crises have acted as a catalyst for growing anxiety around the increasing dispersion of incomes within most advanced economies. We are not “all in it together”.
Recasting international income differences: The next-generation Penn World Table
Robert C Feenstra, Robert Inklaar, Marcel Timmer02 September 2013
Why some countries are richer than others is among the most difficult and important questions in economics. Yet, the Penn World Table, widely used to compare living standards across countries, has faced criticism in recent years. This column discusses how the new version of the tables both addresses these criticisms and provides a wider range of tools that will help researchers gain insight into why income differs across countries.
Simon Johnson, Arvind Subramanian, Will Larson, Chris Papageorgiou
The Penn World Table has long been a standard data source for those interested in comparing living standards across countries and explaining differences in cross-country growth. The article describing version 5.6 (Summers and Heston 1991), is among the most widely cited papers in economics with well over 1000 citations.
Distributional consequences of natural-resource booms: Lessons from Australia
Sambit Bhattacharyya, Jeffrey G. Williamson10 August 2013
What distributional effect do natural-resource booms have on wealth, income and economic power? Using Australia as a case study, this column argues that resource booms tend to exacerbate inequality. The distributional impact of commodity-price shocks in Australia yield important lessons for primary producers from the developmental south, and it’s important for resource-rich developing countries to design appropriate policies to tackle this inequality.
Commodity-price shocks have powerful but unequal effects on labour, capital and land. A large literature, often referred to as the ‘Dutch Disease’ literature, documents the effects of commodity booms on factors of production (Corden and Neary 1982). An increase in global commodity demand and a subsequent rise in commodity prices trigger a sharp rise in commodity exports. Typically, this causes an appreciation in the exporter’s real exchange rate which in turn harms competitiveness of other tradeable sectors, like agriculture and manufacturing.
Cross-country inequality is persistent. This column draws on economic history to explain the mechanisms by which dramatic cross-country differences in income emerge. We can reduce inequality through policies that facilitate the penetration of new technologies in poor and middle-income countries. Such policies can go a long way towards reducing existing cross-country income disparities.
Two-hundred years ago, cross-country differences in income were relatively small. European countries and Western offshoots, what Maddison (2004) called Western countries, were on average 90% richer than the rest.1 By 2000, this income gap had grown to 750%. Most economic studies of long-run development have tried to relate current income differences to pre-determined factors, such as genetic endowments, cultural differences, climate and institutions (e.g., Spolaore and Wacziarg 2009; Ashraf and Galor 2013; Acemoglu et al.
Average income per capita is strongly correlated with more schooling, but this relationship is more complex than it appears. This column presents new research showing that a large part of the correlation is attributed to the causal effect of economic prosperity on the formation of human capital via schooling.
David Hummels, Rasmus Jørgensen, Jakob R. Munch, Chong Xiang
Countries’ average income per capita is strongly correlated with more schooling. This can be seen both by looking at the relationship between them across countries (Figure 1), and by considering their evolution over time in particular countries. For example, the percentage of the population in the US with at least a college degree rose from around 10% in the early 1960s to almost 30% in the early 2000s, while annual real GDP per capita in the same period grew from under $20,000 to over $40,0001.
Pierre-Richard Agénor, Otaviano Canuto, Michael Jelenic21 December 2012
Many of the emerging economies of the last two decades are now ensnared by ‘the middle-income trap’, in which middle-income countries don’t quite push through to high income status. This column presents recent research suggesting that, if governments act early and decisively to improve access to advanced infrastructure, enhance the protection of property rights, and reform labour markets, trapped economies – like their East Asian counterparts in the 1990s – can push on through.
In the postwar era, many countries have managed to quickly reach middle-income status, but few have gone on to become high-income economies1. Rather, after an initial period of rapid ascent, many countries have experienced a sharp slowdown in growth and productivity, falling into what has been called a ‘middle-income trap’:
How does consumption respond to a change in income – whether expected or unexpected, temporary or permanent? This column reviews evidence from diverse sources and suggests that if financial market arrangements and liquidity constraints are binding, even changes in income that are predictable can have a significant effect on consumption. This supports the idea that tax changes can have a considerable impact on expenditure.
Andrew Clark of the Paris School of Economics talks to Romesh Vaitilingam about his research on the relationship between income and health, which examines changes in the health and health behaviours (smoking and drinking) of British people who win prizes in the national lottery. The interview was recorded at the Royal Economic Society’s annual conference at the University of Surrey in March 2010.
Parental education and parental time with children
Jonathan Guryan, Erik Hurst, Melissa S. Kearney05 July 2008
Everyone knows that educated people earn more, smoke less, are less likely to be obese and live longer. This column discusses recent research that shows more educated parents also spend more time with their kids – a result ripe with implications for the inter-generational persistence of income and health inequalities.
Why are some societies democratic, others not? Why do some societies develop modern effective nation states, while others do not? Why do some societies experience revolutions, while others undertake more gradual change? And finally, why are some relatively prosperous, while others are not?
At the heart of comparative politics is an attempt to understand why different societies are organised in different ways. Why are some democratic, others not? Why do some societies develop modern effective nation states, while others do not? Why do some societies experience revolutions, while others undertake more gradual change? And finally, why are some societies relatively prosperous, while others are not?
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