Among the many obstacles in Turkey’s economic transition: its constantly high income inequality Goal. The nation ranks third worst in terms of income inequality among all OECD countries countries. The unequal distribution of wealth may not have a direct relation to Turkey’s current challenges, but the concentration of wealth and the persistent disadvantage among certain sections of society, over time, can only lead to discontent and instability.
Other notable OECD countries with high scores of income inequality include the United States, ranked fourth, and the United Kingdom, ranked sixth, based on their Gini coefficients. Some see in the recent vote for Brexit and the political volatility in the United States, the expression of dissatisfaction linked to inequalities.
Which countries have the lowest income inequalities? Denmark and Norway are almost last. It may not be a coincidence that Denmark was ranked the happiest country in the world by the United Nations (UN) and Norway came fourth.
Economic inequality has taken on increased importance for low- and middle-income countries like India. In the developed world, inequality is not so easy to discern. It is cushioned by advanced economies and social safety nets and often finds its most striking expression in books and graphics – until it emerges in robust change requests. But inequality is much more visible in low-income countries. Often these nations have a large portion of their populations living from hand to mouth. Inequality in these countries tends to be a more multidimensional problem. As Jean Drèze and Amartya Sen demonstrate in An uncertain glory – India and its contradictions, the mutual reinforcement of different inequalities nourishes and creates disparities in a society.
Economists have studied inequality for over two centuries. The work of David Ricardo, in particular, is instructive. Ricardo, in the context of his simple, agriculture-oriented economy of the early 19th century, envisioned imposing a tax increase on land rents to prevent monopoly and inequality. Nobel laureate Simon Kuznets, working in the mid-20th century, hypothesized that income inequality grew at first, but then declined as an economy progressed through stages of development, resulting in an inverted “U” shape Kuznets curve. Kuznets’ work provides a framework for modeling inequalities. However, the evidence for the relevance of the Kuznets curve is mixed. Thomas Piketty, offered a criticism in his The capital in the 21st century.
Income inequality is not easily perceptible in a highly developed and dynamic economy like that of the United States. But the way in which inequality expresses itself and corrects itself – often suddenly and unexpectedly – deserves attention.
Below is a list of online resources that I have encountered over the past few weeks. Happy reading and have a good weekend.
Wisdom in the markets
Globalization and income inequalities
If you liked this article, don’t forget to subscribe to Enterprising investor.
All posts are the opinion of the author. As such, they should not be construed as investment advice, and the opinions expressed do not necessarily reflect the views of the CFA Institute or the author’s employer.
Image credit: © iStockphoto.com / Christian Mueller