Decomposing World Income Distribution

Using the national income/expenditure distribution data from 111 countries, we decompose total inequality between the individuals in the world, by continents and regions. We use Yitzhaki's Gini decomposition which allows for an exact breakdown of the Gini. We find that Asia is the most heterogeneous continent; between-country inequality is much more important than inequality in incomes within countries. At the other extreme is Latin America where differences between the countries are small, but inequalities within the countries are large. Western Europe/North America is fairly homogeneous both in terms of countries' mean incomes and income differences between individuals. If we divide the world population into three groups: the rich (those with incomes greater than Italy's mean income), the poor (those with incomes less than Western countries' poverty line), and the middle class, we find that there are only 11 percent of people who are "world middle class"; 78 percent are poor, and 11 percent are rich.