This is the eighth blog in a series of blogs about how countries can make progress on the interlinked objectives of poverty, shared prosperity and the livable planet. For more information on the topic, read the 2024 Poverty, Prosperity, Planet Report.
Globally, one in five people live in a highly unequal society.
A new World Bank indicator tracks the number of economies with high inequality. These are defined as economies with a Gini index greater than 40, based on income or consumption from the most recent household survey for a country. Using the latest round of household survey data, 49 countries, encompassing approximately 22 percent of the world’s population, had a Gini index above 40.
The Gini index is the most widely used measure of inequality that is bounded between 0 (a society in which everyone has the same income and hence perfect equality) and 100 (where one person has all the income and hence the most unequal society). The Gini index considers all incomes instead of only segments of the income distribution, as is the case in measures using income shares and ratios of specific quantiles. This in part makes the Gini index a more suitable measure of inequality compared to those measures. Furthermore, the ranking of inequality across countries using most other inequality measures are highly correlated with the Gini index making the choice of measure somewhat irrelevant. The Gini index threshold of 40 was chosen based on previous United Nations and World Bank reports (for details, see this study).
The 49 economies with high inequality are concentrated in Latin America and the Caribbean as well as in Sub-Saharan Africa (Figure 1).
Yet, comparing the two regions is complicated because inequality in Sub-Saharan Africa is likely underestimated due to use of consumption, while Latin America uses income. Over 80 percent of the countries in Latin America and the Caribbean had a Gini index above 40, with Brazil and Colombia being the most unequal, followed by countries in Central America. Within Sub-Saharan Africa, inequality is highest in Southern, Central, and Eastern Africa and lowest in Western Africa. At the other end of the spectrum, the Gini index is low for Nordic, Eastern European, and ex-Soviet countries. Overall, Europe and Central Asia have one of the highest numbers of economies with relatively low inequality (defined as those with a Gini index less than 30). Only Türkiye exhibits high levels of inequality in the region.
Figure 1: High inequality countries are concentrated in Latin America and Sub-Saharan Africa
High inequality is more prevalent in low- and middle-income countries as well as countries in fragile and conflict-affected situations (FCS) (Figure 2). The only high-income economies with elevated levels of inequality are Chile, Panama, the United States, and Uruguay. In contrast, around two-fifths of middle-income countries and one-third of low-income countries exhibit high levels of inequality. Although data are limited, two-fifths of FCS countries have high levels of inequality, compared to only a quarter of non-FCS countries in the sample. Of the 68 International Development Association (IDA) countries with data, less than 15 percent were in the low-inequality group and more than double that (37 percent) were in the high-inequality group.
The number of economies with high inequality could be higher if income surveys were available for all economies.
The level of inequality depends on the underlying concept of welfare captured. Income signals an individual’s or family’s potential buying power, whereas consumption expenditure is the realization of that buying power. Households generally do not consume all their income but save. Savings are typically higher in richer households compared to poorer households making the distribution of consumption more equal than the distribution of income. Most high-income countries and countries in Latin America and the Caribbean use income surveys, while the rest of the world tends to use consumption surveys. Despite this, observed inequality in countries that use consumption—typically low-income and lower-middle-income countries—is, on average, greater. This also signals that we may not fully know the extent of inequality in these countries in a way that is comparable with the high-income countries. Even though the level of inequality is typically higher using income compared to using consumption, the inequality ranking is largely unaffected by the type of measure used when both measures are available (Figure 3).
Explicitly tracking high inequality countries can provide incentives to national policy makers to address inequality.
While we find that countries with high inequality are concentrated in regions that were previously known to have high levels of national inequality, such as Latin America and the Caribbean, we also find the concentration of high levels of national inequality in other regions not widely discussed to have high inequality, such as Sub-Saharan Africa.
There is nothing inevitable about inequality. Inequality is determined by historical conditions and market dynamics, but also by policy choices. Policies can target structural sources of inequality at three interconnected levels. First, they can address inequality in acquiring human capital and other assets, before individuals join the labor market, such as policies aimed at reducing differences in educational attainment. These differences oftentimes reflect an inequality of opportunity, encompassing factors that are linked to circumstances that are out of an individual’s control, such as birthplace, parental income, gender, race, and others. Second, policies can address inequality in using skills and assets, which arise from market and institutional distortions in the labor, product, capital, and input markets. These distortions include anticompetitive or discriminatory practices, or policies and regulations that provide preferential treatment or restrict market access for some, while limiting access for others, thus curtailing their productive potential and limiting earning opportunities. Third, fair fiscal policies can be leveraged to improve the redistributive impact of taxes and transfers.
Structural inequalities at each stage reinforce each other and are dynamic. For example, disparities in parental income, indicative of past inequality, directly affect the current generation's productive capacities and their ability to leverage these capacities, contributing to intergenerational mobility. A comprehensive approach that addresses barriers at all three levels is necessary to effectively reduce inequality and enhance socioeconomic mobility.
The authors gratefully acknowledge financial support from the UK Government through the Data and Evidence for Tackling Extreme Poverty (DEEP) Research Program.
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