Global trends in relative and absolute income inequality

What is it about?

This paper provides an overview of historic worldwide trends in relative and absolute income inequality. Depending on the concept used, inequality trends differ considerably. Inequality between countries increased strongly during 1820-2000 and started decreasing at the beginning of the twenty-first century, whether measured in relative or absolute terms. Within-country inequality, on the contrary, grew especially strongly during the last decades: Its growth rate accelerated after 1950 in absolute terms and after 1975 in relative terms. Absolute global inequality also increased substantially in the post-1950 period, whereas relative global inequality decreased slightly during this period.

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Why is it important?

This is the first study that contrasts changes in relative and absolute inequality between 1820 and 2010 to establish if these two measures have moved in the same or in opposing directions. This is important insofar, as for certain types of problems, changes in absolute inequality may be more important than changes in relative inequality (and vice versa). Standard economic theory argues, for example, that rising absolute income differences increase the expected utility of illegal activities and thus generate incentives to engage in property crimes. Moreover, it has been shown that absolute inequality can affect the demand for assets and thus lead to unsustainable asset price booms.