During the last decade, a large and growing literature has focused on inequality from both a conceptual and an empirical perspective. Theoretical contributions have been motivated by considerations such as the scope for an unequal distribution of assets to limit investment in the presence of credit constraints (Aghion et al. 1999) and the potentially greater difficulty of providing public goods in highly unequal societies (Bardhan et al. 1999; Baland and Platteau 1999; Durlauf 1996; Benabou 2000). On the empirical side, several authors conclude that the last decade has experienced a significant increase in inequality in many parts of the world, not just in Eastern Europe (Galbraith 2002; Birdsall 2001; Stewart and Berry 2000; Kanbur and Lustig 1999). Together, these two strands of literature suggest that inequality is something policymakers should worry about in general, especially now that inequality is on the rise. These broad conclusions (Stewart 2000) have potentially far-reaching policy implications. Data on inequality that are comparable across, as well as within countries, can help to determine whether such conclusions are justified, and if so, help explain the reasons for such trends, differentiate more finely across countries, and monitor progress toward improved distribution and greater equality of opportunities.
Author(s): Klaus Deininger and Lyn Squire