Inequality is highest in the Middle East..

Facundo Alvaredo, Lydia Assouad and Thomas Piketty relook at the inequality in Middle East using different sets of data. They say the region has highest inequality amidst the other regions in the world:

According to our benchmark estimates, the share of total income accruing to the top 10% of income earners is about 64% in the Middle East, which compares with 37% in Western Europe, 47% in the US, 55% in Brazil, and 62% in South Africa – the two latter countries being often characterised as the most unequal in the world (see Figure 1).

Figure 1 Top 10% income share, Middle East versus other countries

Notes: Distribution of national income (before taxes and transfers, except pensions and unemployment insurance) among adults. Corrected estimates combining survey, fiscal, wealth, and national accounts data. Equal-split series (income of married couples divided by two). Latest years available (2012–2016).
Source: Alvaredo et al. (2017)

Furthermore, and as in other extremely unequal regions, the Middle East is characterised by a dual social structure. There is an extremely rich group at the top, whose income levels are broadly comparable to their counterparts in high-income countries, and a much poorer mass of the population left with little income (see Figure 2). This structure reflects the absence of a broad ‘middle class’, as the middle 40% of the income distribution is left with far less income than the top 10% in the middle (while it receives much more in Western Europe, and only a bit less in the US). 

Figure 2 Bottom 50% versus middle 40% versus top 10%, across the world

Source: Assouad et al. (2018)

The origins of extreme inequality in these different groups of countries are different. In the Middle East, it is largely due to the geography of oil ownership and the transformation of oil revenues into permanent financial endowments. This translates into a major gap in average income between Gulf countries and other countries, which drives our results. As an example, in 2016, Gulf countries gathered 15% of the total regional population but received almost half of the total income.In contrast, extreme inequality in South Africa is related to the legacy of the apartheid system – until the early 1990s, only the white minority (about 10% of the population, which until today roughly corresponds to the top 10% income group) had full mobility and ownership rights. In Brazil, the legacy of racial inequality also plays an important role – it was the last major country to abolish slavery in 1887, at a time when slaves made up about 30% of the population. 

The policy implications:

The extreme concentration of income at the regional level highlights the need to increase pro-poor investments in health, education, and infrastructure, and to develop mechanisms of regional redistribution. Such mechanisms already exist, but they should be implemented more systematically.

In addition, the tax systems of most countries in the region rely overwhelmingly on regressive indirect taxes, with only a few components comprising direct progressive taxes. In particular, it is striking to observe the near absence of a progressive inheritance tax regime in most countries of the region. Yet this is a historically powerful tool for limiting the persistence of extreme income inequality levels, and to finance welfare services. 

Finally, while we believe that our estimates are more robust than survey-based official inequality statistics, we stress that access to more and better data is critical in the Middle East, where a lack of transparency raises the problem of democratic accountability, independent of the actual level of inequality observed.

Hmm….

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