The Decline of International Income Inequality? Cross-National Income Convergence Revisited

Abstract

Prior research shows global income inequality declined over the last few decades because of a reduction in income disparities between countries. However, concerns over the sustainability of this trend have grown with increases in income disparities within countries. Yet, despite these contrasting trends, few studies examine the extent to which the latter affects the former. Based on dynamic panel models of 108 countries from 1981 to 2017, we find that the rate of convergence in incomes between countries is moderated by the income inequality within countries. The national incomes of egalitarian countries are converging, while the national incomes of inegalitarian countries tableare diverging. Overall, this study calls into question the sustainability of decreasing international income inequality amid increasing national income inequality. More importantly, it shows that national redistribution policies are increasingly important in the twenty-first century, not only to reduce income disparities within countries but also to potentially reduce income disparities between countries.