For Good Measure Read online

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  Piketty, T. (2014), Capital in the 21st Century, Harvard University Press, Cambridge, MA.

  Piketty, T. (2001), Les Hauts revenus en France au 20e siècle: inégalités et redistribution, 1901–1998, Éditions Grasset, Paris.

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  Ravallion, M. (2015), “The Luxembourg Income Study,” in Ferreira, F.H.G. and N. Lustig, “Appraising cross-national income inequality databases,” special issue, Journal of Economic Inequality, Vol. 13(4), pp. 527–547.

  Ravallion, M. (2003), “Inequality convergence,” Economics Letters, Vol. 80(3), pp. 351–356.

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  Roemer, J. and A. Trannoy (2015), “Equality of opportunity,” in Atkinson, A.B. and F. Bourguignon (eds.), Handbook of Income Distribution, Vol. 2, Elsevier, North-Holland, Amsterdam, pp. 217–296.

  Ruiz, N. and N. Woloszko (2016), “What do household surveys suggest about the top 1% incomes and inequality in OECD countries?,” OECD Economics Department Working Papers, No. 1265, OECD Publishing, Paris, http://dx.doi.org/10.1787/jrs556f36zt-en.

  Saez, E. (2003), “The effect of marginal tax rates on income: A panel study of ‘bracket creep,’” Journal of Public Economics, Vol. 87(5), pp. 329–347.

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  Scott, J. (2014), “Redistributive impact and efficiency of Mexico’s fiscal system,” in Lustig, N., C. Pessino, and J. Scott, “The redistributive impact of taxes and social spending in Latin America,” special issue, Public Finance Review, Vol. 42(3), pp. 368–390.

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  4.

  Horizontal Inequalities

  Carmen Diana Deere, Ravi Kanbur, and Frances Stewart

  This chapter discusses the importance of horizontal inequalities, i. e., inequalities in both the income and nonincome dimensions among groups of people with shared characteristics; of intra-household inequality; and of gender inequalities in the distribution of wealth (the gender wealth gap). Measurement of horizontal inequalities raises the question of which group classification to adopt, whether to weight measures for each group by its population size in order to obtain an aggregate measure, and how to take into account intra-group distribution. The chapter then considers how estimates of overall inequality might be impacted by the neglect of intra-household inequality, highlighting the difference between household and individual welfare, and how to obtain better estimates of the gender wealth gap.

  Carmen Diana Deere is Distinguished Professor Emerita of Latin American Studies and Food & Resource Economics, University of Florida; Ravi Kanbur is T.H. Lee Professor of World Affairs, International Professor of Applied Economics and Management, and Professor of Economics, Cornell University; Frances Stewart is Emeritus Professor of Development Economics, University of Oxford. Although the three themes have been integrated in a single chapter because of their substantive inter-relatedness, Frances Stewart is the author of the section on Horizontal Inequalities, Ravi Kanbur on Intra-household Inequality, and Carmen Diana Deere on the Gender Wealth Gap. The authors wish to thank Nora Lustig for bringing them together for this exercise, and Marco Mira D’Ercole and Joe Stiglitz for their comments. “Horizontal Inequalities” was prepared by Frances Stewart and draws on Stewart (2016). “Intra-household Inequality” was prepared by Ravi Kanbur and extracted from Kanbur (2018). “The Gender Wealth Gap” was prepared by Carmen Diana Deere. The opinions expressed and arguments employed in the contributions below are those of the authors and do not necessarily reflect the official views of the OECD or of the governments of its member countries.

  Introduction

  A major concern of this volume is inequality of income, consumption, and wealth among individuals. This type of inequality (also called vertical inequality), while important in many contexts, ignores systematic inequities among population groups, is often restricted to the “economic” dimensions of inequality, and assumes that each individual in a household receives the mean income of that household. This chapter discusses the importance of horizontal inequalities (i.e., inequalities among groups of people with shared characteristics), both in the income and nonincome dimensions, of intra-household inequality, and of gender inequalities in the distribution of wealth (i.e., the gender wealth gap). The three sections of this chapter, while covering topics which are important in their own right, also link with each other in important ways. For example, a key aspect of intra-household inequality is inequality between women and men within the household, and this relates to the broader question of horizontal inequality in society; in turn, gender inequalities are especially important in the case of wealth inequality, an issue that this chapter explores through a focus on a specific measurement initiative.

  While, as argued below, these inequalities are of great importance and policy relevance, there are no systematic efforts to collect the necessary data and publish the appropriate indicators. This is due, in part, to the conceptual and practical challenges that their measurement entails. However, as explained below, much more could be done to standardize the practice of collecting the relevant information and broadening the diagnostic indicators used for social progress assessments.

  Horizontal Inequalities

  Why Horizontal Inequalities Matter

  Horizontal inequalities constitute one of the most important types of inequality, notably because of their implications for justice and social stability. Relevant group categories include race, ethnicity, religion, gender, and age. Despite their importance, much more attention is normally given to vertical inequalities (or inequalities among individuals generally, whatever groups they belong to) in analysis and policy.

  Most people are members of many groups and, in assessing horizontal inequalities within any society, the first issue to address is which group classification to adopt. The appropriate classification(s) will reflect felt identity distinctions, not only in relation to people’s own perceived identity but also to how they perceive others. Some group categories may be transient or unimportant—for example, membership of a particular club. But other categorizations shape the way people see themselves and how they are treated and behave. Age and gender distinctions are universally important, but societies differ as to what the other salient identities are, and there can be changes in their importance over time. For example, race has been an important identity distinction in South Africa, yet it is possibly of lesser importance today than previously. Ethnicity is a highly relevant category within many Latin American and African countries, associated with discrimination, grievance, and sometimes mass violence. Religion constitutes a critical dividing line between people the world over today, but in Europe it no longer leads to the wars it once did.

  Group categorizations are fluid and may be blurred at the edges but nonetheless are keenly felt, are often a source of discrimination, and are typically associated with low levels of inter-group trust and weak social interactions. Identity differences are particularly significant in relation to social and political stability when categories overlap—e.g., when members of different ethnic groups also adhere to different religions.

  Distributional issues are most often considered along a single dimension—notably in the income space—although the need for multi-dimensional measures has been strongly advocated (Sen, 1980). Multi-dimensionality is an essential feature of horizontal inequality. Three prime dimensions are socio-economic, political, and cultural. For each of these there is an array of elements. For example, socio-economic inequalities include inequalities in access to basic services—e.g., education, health care, water—and inequalities in economic resources, including income, assets, employment, and so on. In the political dimension, relevant inequalities include those in representation in government, the upper levels of the bureaucracy, the military and the police, and in local administrations. On the cultural side, relevant inequalities include those in recognition, use, and respect for language, religion, and cultural practices.

  There are many causal connections across various dimensions and elements. For example, educational inequalities may be responsible for a range of economic inequalities, with reverse causality present such that low incomes tend to be associated with low education of children. Inequalities in cultural recognition can lead to educational and economic inequalities if, for example, a group’s language is not used in government business or the education system. The tighter the causal connections, the more consequential these inequalities are. As with group classification, the relevant dimensions vary across societies. While land inequalities are of major significance in agrarian soc
ieties, for example, they matter little in economies where agriculture is relatively insignificant and where inequalities in financial asset ownership and skills determine life chances.

  Horizontal inequalities are important both in themselves and instrumentally, since they affect other objectives (Loury, 1988). Above all, any significant horizontal inequality is unjust since there is no reason why people should receive unequal rewards or have unequal political power merely because they are black rather than white, women rather than men, or of one ethnicity rather than another. Anti-discrimination law is justified on this principle. Another intrinsic reason for concern with horizontal inequalities is that they can have a direct impact on well-being. Individual well-being can be affected not only by a person’s own circumstances, but also by how well their group is doing, since membership of certain groups can form an integral part of a person’s identity. Likewise, relative group poverty contributes to the perception that an individual may be trapped permanently in a poor position. Psychologists have shown, for example, that psychological ills of African Americans are sometimes associated with the position of their group (Broman, 1997). Hence, it has been argued that the relative position of the group should enter into an individual’s welfare function (Akerlof and Kranton, 2000).

  Besides these intrinsic reasons for concern, horizontal inequality affects the achievement of other objectives. The most powerful instrumental reason is that horizontal inequalities have been shown to raise the risk of violent conflict significantly (Stewart, 2008; Cederman, Weidmann, and Gleditsch, 2011). Group inequalities provide powerful grievances that leaders can use to mobilize political protest, by calling on cultural markers (e.g., a common history or language or religion) and pointing to group exploitation. This type of mobilization is especially likely to occur where there is political as well as economic inequality, such that the leaders of the more deprived groups are excluded from political power and therefore have a motive for mobilizing. Examples where group inequalities have been a factor in provoking conflicts include Côte d’Ivoire, Rwanda, Northern Ireland, Chiapas, and Sudan (Gurr, 1993; Langer, 2005; Stewart, 2002; Murshed and Gates, 2005). Sharp horizontal inequalities within countries (and between them) are an important source of grievance and of political instability, independently of the extent of vertical inequality. Indeed, most econometric investigations have shown little connection between vertical inequality and conflict (Fearon and Laitin, 2000; Collier and Hoeffler, 2004).