The World Inequality Report 2018 draws from data available on the World Wealth and Income Database (WID.world), which combines historical statistical sources in a consistent and fully transparent way to fill a gap in the democratic debate regarding inequality. Our objective in this report has been to present inequality data that are consistent with macroeconomic statistics such as GDP and national income and that can be easily understood and used by the public, to help ground deliberations and decisions in facts. Our data series are fully transparent and reproducible; our computer codes, assumptions, and detailed research papers are available online so that any interested person can access and use them.
Drawing on novel inequality data published on WID.world, Part II showed that since 1980, income inequality has increased rapidly in North America and Asia, has grown moderately in Europe, and has stabilized at extremely high levels in the Middle East, sub-Saharan Africa, and Brazil. The poorest half of the global population has seen its income grow significantly thanks to high growth in Asia (particularly in China and India). Perhaps the most striking finding of this report, however, is that, at the global level, the top 0.1% income group has captured as much of the world’s growth since 1980 as the bottom half of the adult population. Conversely, income growth has been sluggish or even nil for the population between the global bottom 50% and top 1%. This includes North American and European lower- and middle-income groups. The diversity of trends observed in the report suggest that global dynamics are shaped by a variety of national institutional and political contexts. There is no inevitability behind the rise of income inequality.
In Part III, we presented recent shifts in public versus private capital ownership. Understanding the dynamics of private and public capital ownership is critical to understanding the dynamics of global inequality, and particularly of wealth inequality. We documented a general rise in the ratio between net private wealth and national income in nearly all countries in recent decades. It is striking to see that this long-run finding has been largely unaffected by the 2008 financial crisis, or by the asset price bubbles experienced by countries including Japan and Spain. There have also been unusually large increases in the ratios for China and Russia, following their transitions from communist- to capitalist-oriented economies. These shifts were mirrored by the dynamics of public wealth, which has declined in most countries since the 1980s. Net public wealth (public assets minus public debts) has even become negative in recent years in the United States, Japan, and the United Kingdom, and is only slightly positive in Germany and France. This arguably limits government ability to regulate the economy, redistribute income, and mitigate rising inequality.
In Part IV, we discussed how increasing income inequality, and the large transfers of public wealth to private hands which have occurred over the past forty years, have led to a rise in wealth inequality among individuals. At the global level—represented by China, Europe, and the United States—the top 1% share of wealth increased from 28% in 1980 to 33% today, while the bottom 75% share oscillated around 10%. Large rises in top wealth shares have been experienced in China and Russia following their transitions from communism toward capitalist economies, though the different inequality dynamics experienced between these two countries highlight different economic and political transition strategies. In the United States, wealth inequality has increased dramatically over the last thirty years and has mostly been driven by the rise of the top 0.1% wealth owners. Growing inequality of income and saving rates created a snowballing effect of rising wealth concentration. The increase in top wealth shares in France and the UK has been more moderate over the past forty years, in part due to the dampening effect of the rising housing wealth of the middle class and lower income inequality relative to the United States.
In Part V, we presented projections on the future of global income inequality, which is likely to be shaped both by convergence forces (rapid growth in emerging countries) and divergence forces (rising inequality within countries). Our benchmark projections showed that if within-country inequality continues to rise as it has since 1980, then global income inequality will rise steeply, even under fairly optimistic assumptions about growth in emerging countries. The global top 1% income share could increase from nearly 20% today to more than 24% by 2050, in which case the global bottom 50% share could fall from 10% to less than 9%. If all countries were to follow the high inequality growth trajectory followed by the United States since 1980, the global top 1% income share would rise even more. Conversely, if all countries were to follow the relatively low-inequality growth trajectory followed by Europe since 1980, the global top 1% income share would actually decrease by 2050. This finding reinforces one of our main messages: rising income inequality is not inevitable in the future. We also stressed that differences between high and low inequality growth trajectories within countries have enormous impacts on incomes of the bottom half of the global population.
The remainder of Part V was dedicated to a discussion of key policy issues that should be brought back to the center of the political agenda to tackle inequality. We certainly do not claim to have ready-made solutions to rising inequality within all countries. We believe, however, that much more can be done in the four key policy areas we highlight.
We first emphasized that progressive income taxation is a proven tool to combat rising income and wealth inequality at the top. It not only reduces posttax inequality, it also shrinks pretax inequality by discouraging top earners from capturing higher shares of growth via aggressive bargaining for higher pay. It should be noted that tax progressivity was sharply reduced in rich countries from the 1970s to the mid-2000s. Since the global financial crisis of 2008, however, the downward trend has been halted and reversed in some countries. The future use of progressive taxation remains uncertain and will depend on democratic deliberation.
Second, we argued that although tax systems are crucial mechanisms for tackling inequality, they also face obstacles—among them, tax evasion. The wealth held in tax havens is currently equivalent to more than 10% of global GDP and has increased considerably since the 1970s. The rise of tax havens makes it difficult to properly measure and tax wealth and capital income in a globalized world. Reducing financial opacity is critical to improving data on wealth and its distribution, to fostering a more informed public debate about redistribution, and to fighting tax evasion, money laundering, and the financing of terrorism. One key challenge, however, involves recording the ownership of financial assets. While land and real estate registries have existed for centuries, they miss a large fraction of the wealth held by households today, as wealth increasingly takes the form of financial securities. A global financial register recording the ownership of equities, bonds, and other financial assets would deal a severe blow to financial opacity.
Third, we discussed the importance of achieving more equal access to education and good paying jobs, if the bottom half of the population is to escape the trap of stagnating or sluggish income growth rates. Recent research shows the enormous gaps that often exist between public discourses about equal opportunity and the practical realities of unequal access to education. In the United States, for instance, out of a hundred children whose parents fall within the bottom 10% of income earners, between twenty and thirty go to college. That figure reaches ninety, however, among children whose parents fall within the top 10% of earners. On the positive side, research shows that elite colleges in the United States are able to improve openness to students from poor backgrounds without compromising their outcomes. Whether a country is rich or emerging, it might have to set transparent and verifiable objectives—while also making changes in financing and admissions systems—to equalize access to education. Democratic access to education can achieve much, but unless there are also mechanisms to provide people at the bottom of the distribution with access to good paying jobs, investments in education cannot do enough to tackle inequality. Better representation of workers in corporate governance bodies and boosts in minimum wages are important tools to achieve this.
Finally, we stressed the need for governments to invest more in the future, both to address current income and wealth inequality levels and to prevent further increases. This is particularly difficult given that governments have become poor and heavily indebted in rich countries over the past decades. Reducing public debt is by no means an easy task, but several options exist for accomplishing it (including taxation, debt relief, and inflation), all of which have been used across history. Finding the proper combination of solutions will require serious public debate, which must be grounded in sound economic, social, and historical analysis.
To conclude, we must repeat that current knowledge of global income and wealth inequality remains limited and unsatisfactory. Much more data collection work lies ahead of us to expand the geographical coverage of our inequality data, as well as to provide more systematic representations of pre- and posttax income and wealth inequality. WID.world, the World Inequality Lab, and their partner institutions are committed to pursuing these efforts in the coming years.
The WID.world database is currently being expanded to increase its coverage of emerging countries in Asia (in particular, Malaysia and Indonesia), Africa (for instance, in South Africa), and Latin America (Chile and Mexico, among others).
We are also currently working towards better integration of natural capital in national wealth estimates, as the importance of environmental degradation as a dimension of inequality continues to grow.
More gender inequality data are also being integrated to WID.world and we are developing estimates of inequality at the regional (subnational) level, with the aim of further reducing the gap between individuals’ perceptions of inequality and what economic statistics are able to measure. Indeed, WID.world is just one step in a long, cumulative research process.
We welcome efforts made by other institutions and researchers to take part in this collective endeavor. And we very much hope that, together with all interested actors and citizens, we will continue making progress toward financial transparency and economic democracy in the years to come.