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Explaining international and intertemporal variations in income inequality

By Hong Yi Li, Lyn Squire and Heng-fu Zou


This paper explores the propositions that, income inequality is relatively stable within countries; and that it varies signi®cantly among countries. A new and expanded data set provides broad support for both propositions. Drawing on a political economy and capital market imperfection arguments to explain the intertemporal and international variation in inequality, the empirical analysis shows that the predicted variables associated with the ®rst argument (a measure of civil liberties and the initial level of secondary schooling) and the second argument (a measure of ®nancial depth and the initial distribution of land) are indeed important determinants of inequality. This paper explores two propositions regarding income inequality. They are: ®rst, income inequality is relatively stable within countries; and second, it varies signi®cantly across countries. 1 To illustrate, note that the Gini coef®cient in India remained almost constant for forty years (1951±92) with mean 32.6 and standard deviation 2.0. 2 In contrast, the variation in Gini coef®cients across countries is large: 61.9 in Honduras in 1968 compared with 17.8 in Bulgaria in 1976. If substantiated, these propositions have potentially signi®cant implication

Year: 1998
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