The End of Class Warfare: An Examination of Income Disparity

During the 1990s, the richest quintile of a country had an average income per capita approximately ten times that of the poorest quintile. We find that the poor of a country are better off relatively, and absolutely, when the country ranks higher in average income, union participation, taxation, government spending, education, and property rights. Under these same conditions, the wealthy of a country also have more absolute per capita income, just not a higher percentage relative to the poor. Countries with substantial black market activity, high levels of international trade (as a percentage of GDP), and former Spanish colonies have greater income disparity; these features also coincide with lower incomes for both rich and poor. Key features of democracy such as political and voting rights, civil liberties and freedom of the press, while important for economic growth, are not independently associated with income inequality. We find little empirical support for a tradeoff between a high level of prosperity and greater equality. Above a very low level of development, appropriate policies are associated with both higher average and more equal income.