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new data set measuring income inequality

new data set measuring income inequality - A N EW...

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A NEW DEVELOPMENT DATA BASE The following article is the first in an occasional series introducing new data bases. The series intends to make new development data bases more widely available and to contribute to discussion and further research on economic de- velopment issues. The data bases included in the series are selected for their potential usefulness for research and policy analysis on critical issues in devel- oping and transition economies. Some are drawn from micro-level firm or house- hold surveys; others contain country-level data. The authors describe the data contents, criteria for inclusion or exclusion of values, sources, strengths and weaknesses, and any plans for maintenance or updating. Each data base is avail- able from the author, at the address provided in the article. 563
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THE WORLD BANK ECONOMIC REVIEW VOL. 10, NO. 3: J65-91 A New Data Set Measuring Income Inequality Klaus Deininger and Lyn Squire This article presents a new data set on inequality in the distribution of income. The authors explain the criteria they applied in selecting data on Gini coefficients and on individual quintile groups' income shares. Comparison of the new data set with existing compilations reveals that the data assembled here represent an improve- ment in quality and a significant expansion in coverage, although differences in the definition of the underlying data might still affect intertemporal and international comparability. Based on this new data set, the authors do not find a systematic link between growth and changes in aggregate inequality. They do find a strong positive relationship between growth and reduction of poverty. Following a long-standing recognition of potentially important relationships between economic growth and inequality, the profession has recently rediscov- ered the topic, emphasizing, in particular, the potential endogeneity of growth and interactions between the economic and political systems. Earlier discus- sions, such as the famous Kuznets Hypothesis, were framed mainly in terms of an exogenous growth process and its implications for inequality. In contrast, the recent literature has focused on the potential effects of inequality on growth in a wide variety of circumstances. Although attention has focused on both political and economic explanations for such a relationship, the underlying processes are still imperfectly understood. Indeed, theoretical models arrive at widely differ- ent conclusions, depending on the underlying assumptions. Which of these as- sumptions is more accurate is an empirical question that can only be decided by confronting the hypotheses emerging from such models with actual data. Empirical work using cross-country data to draw inferences regarding the relationship between growth and inequality has a long tradition and has led to a number of fruitful (or controversial) hypotheses, including Kuznets's conjecture that inequality would increase with rising incomes at early stages of development and decrease at higher levels of per capita income. The lack
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