Income gap: international comparisons?

A question from Yahoo! Answers:

What are the top 10 countries in the world that have widest income gap (income inequality)?

Income equality is like mission impossible for every country, developped or underdevelopped…we consider a country’s economic policy effective if it can keep the gap as narrow as possible, since there’s no way the gap would be completely closed. But apparently there are many countries in the world, despite of their efforts, still can’t close the gap a bit…So I am wondering what are the top 10 countries that have widest income gap, or greatest income inequality…

The answer is, we simply don’t know. To start with, there is more than one way to measure income inequality; you can compute a Gini coefficient, estimate the share of national income received by 1% of the richest households, compare income of top and bottom quartiles, quintiles, or deciles, etc. But even more importantly, in developing countries, reliable income data are hard to come by, because they are distorted by informal economy on the low end and sophisticated tax evasion on the high end.

For example, the official government data for Russia (based on tax returns) indicate a Gini coefficient of 0.38. Alternative estimates conducted by Russian economists Sergei Aivazyan and Stanislav Kolenikov based on the data or Russia Longitudinal Monitoring Survey suggest a much higher Gini coefficient of 0.55-0.57.

Countries where estimated Gini coefficients are consistently high include Brazil and Nigeria.

Another issue is that income inequality is the wrong target; it is possible that a good policy should target WEALTH inequality instead…

Anyhow, the World Bank maintains a database of income inequality studies and their results. You can get a copy here:

http://econ.worldbank.org/WBSITE/EXTERNA…

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