Top Incomes in Taiwan, 1977-2013

Traditionally, there have been two standard ways of measuring income inequality, one being the Gini coefficient, and the other the ratio between the average income of the richest 20% group and the poorest 20% group (hereafter referred to as the 20% average income ratio). In Figure 1 we depict these two measures for Taiwan in the past half a century (1964-2013). It can be seen from Figure 1 (and Table A1 in the Appendices for the detailed numbers) that at the initial stage of Taiwan's economic development in 1964, Taiwan's 20% average income ratio was 5.33. It then dropped to its lowest level of 4.17 in 1980, after which the inequality index began to rise. The same pattern can be observed from the Gini index. This U-shaped pattern of inequality dynamics seems to contrast with the famous inverted-U hypothesis of Kuznets (1953). Such a seemingly unique U-shaped pattern of inequality indexes along with Taiwan's rapid economic growth in the ‘60s and ‘70s caught the attention of many economic researchers. A renowned book Growth with Equity: the Taiwan Case was published by John Fei et al. (1979), and was followed by many related articles. The decline in inequality along with the rapid economic growth in Taiwan before 1980 was then praised as a "miracle" in economic development, and differed from the doctrinal inverted-U hypothesis of Kuznets.