Income inequality
education and primary health care). However, the effective targeting of lower-income groups in expenditure programmes is hard to design and to implement.
The adverse effect of exogenous drivers, such as financial and trade globalization, on income inequality during the past three decades has been exacerbated by national policies that have had a negative impact on income distribution... National policies, including a strengthening of institutions to deal with inequality, can play an important role in reducing income inequality.
OECD (2011) shows countries with sufficient data that household income inequality can be substantially reduced and that some countries even spend much more on the provision of such ‘in-kind’ services than on cash benefits, as in, for example, the Englishspeaking and Nordic countries, Republic of Korea and Mexico. Across OECD countries, social expenditures reduced income inequality by one fifth on average and their share of GDP and redistributive impact remained constant over the 2000s. A recent project in Tulane University led by Nora Lustig (2012) and made for several countries studies in depth how government taxes, subsidies and expenditure have affected different forms of inequality. 19 Figure 3.15 shows that the reduction from secondary inequality (disposable income) to tertiary inequality (final income) can be substantial. In Argentina and Brazil, the Gini index dropped substantially from 46.5 to 38.8 and from 54.2 to 45.9, respectively, and, in Bolivia and Mexico, from 46.5 to 42.5 and from 53.2 to 48.2, respectively.
3.4. Conclusion Over the past 20 years, on average, household income inequality has risen in high-income (developed) and developing countries. Classifying countries by income, the trend clearly shows that countries moving up in income classification have had steeper increases in income inequality than most other countries. Examining regional trends over the whole period from the early 1990s to the late 2000s, average inequality fell in some regions (Latin America) and rose in others (Asia). Looking at periods before and after the turn of the century shows more non-linear trends. In some countries, inequality rose during the 1980s and 1990s, but then fell in 2000s; in others, inequality fell during the 1980s and 1990s, but rose in the 2000s. However, despite reversals in some countries, the intensity of change has been greater in the direction of rising income inequality. It therefore remains important to focus on drivers of income inequality and by examining different forms of income distribution such as functional distribution, wage distribution, primary distribution (household market income), secondary distribution (market income corrected for taxes and subsidies), and tertiary distribution (taking into account imputed household income from services). This chapter argues that globalization and especially financialization, and, to a certain extent, skills-based technical change, have been important exogenous drivers of inequality. These drivers have in various cases strengthened existing patterns of inequality through a stubbornly high-wealth inequality and through intergenerational transfers of inequality due to skewed access to higher-level education.
94 Humanity Divided: Confronting Inequality in Developing Countries