Inequality Within Countries is Falling: Underreporting-Robust Estimates of the Global Distribution of Income

• In Event: Global Distribution, Migration, and Shocks

Abstract

Household surveys suffer from persistent and growing underreporting. We propose a novel procedure to adjust reported survey incomes for underreporting by estimating a model of misreporting whose main parameter of interest is the elasticity of regional national accounts income to regional survey income, which is closely related to the elasticity of underreporting with respect to income. We find this elasticity to be substantial but roughly constant over time, implying a large but relatively constant correction to survey-derived inequality estimates. Underreporting of income by the bottom 50% of the world income distribution has become particularly important in recent decades. We reconfirm the findings of the literature that global poverty and inequality have declined dramatically between 1980 and 2019 using multiple poverty lines and inequality measures. Finally, we find that within-country inequality has been falling on average since at least 2012 and was close to its 1990s levels by 2019.

Authors

• Maxim Pinkovskiy, Federal Reserve Bank of New York

• Xavier Sala-i-Martin, Columbia University

• Kasey Chatterji-Len, Rattner Family Office

• William Nober, Columbia University