Inequality Transparency Index

Access to quality data on the distribution of income and wealth is a condition for peaceful democratic debates on economic matters

The past decades have been witness to important developments in the measurement of income and wealth inequality. However, available information on income and wealth distributions remains particularly scarce across the world. The opacity of the financial system, the types of tools used by statistical administrations to track inequality and sometimes the reluctance of governments to publish data they have in hand still make it particularly difficult to know which groups of the population benefit from economic progress.

The World Inequality Database combines the best available sources, namely household surveys, tax data, national accounts (and, when available information from financial leaks, such as the “Panama papers”) in a systematic and transparent way in order to publish inequality series for most countries (See the World Inequality Report for a longer discussion on data quality issues). Inequality series published on WID.world constitute an improvement from official statistics as they include more information (particularly at the top of the distribution). They however remain imperfect. 

In order to improve existing series, more data will have to be released by  statistical agencies and governments. In order to give a sense of the road ahead, WID.world publishes an inequality transparency index — an evolutive and collaborative tool describing the availability and quality of information on income and wealth inequality in a given country.

How our income and wealth inequality transparency index is constructed

The index inequality transparency index ranges from 0 to 20 for each country in The inequality transparency index seeks to put equal emphasis on wealth and income (wondering why? please click here). It is constructed as follows:

  • Income survey tabulations (or consumption surveys) available to researchers add 1 point.
  • Income survey microdata add up to 3 points.
  • Wealth survey tabulations add up to 1 point.
  • Wealth survey microdata add  up to 3 points.
  • Income tax tabulations covering labour income add up to 1 point.
  • Income tax tabulations covering capital income add up to 1 point.
  • Income tax microdata covering labour income add up to 2 point.
  • Income tax microdata covering capital income add up to 2 point.
  • Wealth tax or estate tax tabulations add up to 2 point.
  • Wealth tax or estate tax microdata add up to 4 point.

For more technical information on the construction of inequality series on WID.world, please refer to the Distributional National Acounts Guidelines, available  here

Data on the availability of these different types of data sources are collected internally by World Inequality Lab research fellows and the network of WID.world researchers. Information is thoroughly checked and completed by the coordinators of the different world regions and available here.

If the last available data is older than ten years old, then it is considered to be unavailable. Datasets which have only been used once for specific studies and are inaccessible to academic researchers upon request to statistical authorities or government agencies are also considered to be unavailable. In some countries, datasets are available but of very low quality. In these cases the World Inequality Lab does not give the full marks. 

In the digital age, we still live in the prehistory of income and wealth statistics

The inequality transparency index reveals that highest-ranking countries include Western European countries and the United States, but also Colombia, Mexico or South Africa where statistical authorities have recently provided access to tax microdata to researchers. However, even in these countries, inequality transparency scores remain relatively low. This reflects the fact that progress can and should be made in all countries when it comes to data transparency. Lowest-ranking countries include Libya, Somalia or Afghanistan, where no information on current levels of income or wealth inequality are available at all. 

The best case scenario is a situation in which household surveys are matched with administrative tax records (as it is at least partly the case in some Nordic countries for instance). This makes it possible to have precise information on income and wealth statistics among all income and wealth groups (including those at the very top, badly covered in household surveys), as well as precise information of social and demographic characteristics of the population (which is generally absent from tax statistics). 

Such developments will require serious efforts by statistical agencies and governments over the world. This is by no means unfeasible. The research community and civil society actors are willing to help authorities go in this direction. In the current digital age, access to basic information on the distribution of income and wealth growth should be considered as a public good.

      • This index is an evolutive tool. If information is released by a country, we will thrive to ensure that the index reflects these changes.
      • This is also your index.  If you have had access to information that is not reported in our database, do not hesitate to contact us and we will be happy to review the index. 

 

There are several reasons for this. First, in order to properly analyze income inequality, it is critical to decompose total income into two categories of income flows: income from labor and income from capital. The latter category has played an important role in the rise of inequality in recent decades—and an even bigger role if we look at the evolution of the distribution of income in the very long run.

Next, one of our key goals is to relate macroeconomic issues—such as capital accumulation, the aggregate structure of property, privatization or nationalization policies, and the evolution of public debt—to the microeconomic study of inequality. Far too often, the study of the “capital” side of the economy (that is, focused on capital, investment, debt, and so forth) is separated from the study of the “household” side (that is, looking at wages, transfers, poverty, inequality, and other issues).

We should make clear, however, that a lot of progress needs to be made before we can present a fully integrated approach. Doing so requires careful measurement not only of the inequality of pre-tax and post-tax income, but also of the distribution of saving rates across the different deciles of the distribution of pre-tax income. The combination of series on the distribution of pre-tax and post-tax income, savings, and wealth will also allow us to relate in a systematic manner the inequality of income, wealth, and consumption (that is, income minus savings).

In our view, however, it would be a mistake to overemphasize the consumption perspective, as the literature on inequality and poverty has sometimes done. Consumption is obviously a very important indicator of wealth, particularly at the bottom of the distribution. The problem is that the household surveys routinely used to study consumption inequality tend to underestimate the consumption, income, and wealth levels reached by the top of the distribution. Also, the notion of consumption is not always well defined for top income groups, which typically save very large proportions of their income. They choose to do so partly in order to consume more in later years, but more generally in order to consume the prestige, security, and economic power conferred by wealth ownership. In order to develop a consistent and global perspective on economic inequality—that is, a perspective that views economic actors not only as consumers and workers but also as owners and investors—it is critical, in our view, to put equal emphasis on income and wealth.