Homogeneous Middles vs. Heterogeneous Tails, and the End of the ‘Inverted-U’: It's All About the Share of the Rich


  • José Gabriel Palma

    1. a Chilean national; he is Senior Lecturer at the Faculty of Economics, Cambridge University, where he has taught econometrics, macroeconomics, development and economic history since 1981. He is also co-editor of the Cambridge Journal of Economics. His research focuses predominantly on the economic history of Latin America, the political economy of neoliberal reforms in Latin America and Asia, and financial crises. He can be contacted via e-mail: jgp5@cam.ac.uk
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To my Mother (who would have enjoyed reading this). Tony Atkinson, Carol Baltar, Stephanie Blankenburg, Jonathan DiJohn, Juliano Fiori, Samer Frangie, Jayati Ghosh, Daniel Hahn, Ricardo Infante, Mushtaq Khan, Alice Madeleine Hogan, Jesse Hogan, Isidoro Palma Matte, Hashem Pesaran, Carlota Pérez, Jonathan Pincus, Donald Robertson, Bob Rowthorn, Ignês Sodré, Jacobo Velasco, four anonymous referees and especially Pamela Jervis, Javier Núñez, Guillermo Paraje, Ashwani Saith and Bob Sutcliffe made very useful contributions. Participants at several conferences and seminars also made helpful suggestions. Lastly, I am very grateful to Andrew Glyn for the many lively discussions we had on this subject before his untimely death (he was particularly drawn in by the policy implications of the new stylized fact found in this paper regarding the ‘homogeneous middle’). The usual caveats apply.


This article examines distributional disparities within nations. There are six main conclusions. First, about 80 per cent of the world's population now lives in regions whose median country has a Gini close to 40. Second, as outliers are now only located among middle-income and rich countries, the ‘upwards’ side of the ‘Inverted-U’ between inequality and income per capita has evaporated (and with it the hypothesis that posits that ‘things have to get worse before they can get better’). Third, among middle-income countries, Latin America and mineral-rich Southern Africa are uniquely unequal, while Eastern Europe follows a distributional path similar to the Nordic countries. Fourth, among rich countries there is a large (and growing) distributional diversity. Fifth, within a global trend of rising inequality, there are two opposite forces at work. One is ‘centrifugal’ and leads to an increased diversity in the shares of the top 10 per cent and bottom 40 per cent. The other is ‘centripetal’ and leads to a growing uniformity in the income-share appropriated by deciles 5 to 9. Therefore, half of the world's population (the middle and upper-middle classes) have acquired strong ‘property rights’ over half of their respective national incomes; the other half of this income, however, is increasingly up for grabs between the very rich and the poor. And sixth, globalization is thus creating a distributional scenario in which what really matters is the income-share of the rich (because the rest ‘follows’).