What are the Determinants of Income Inequality Within and Between Countries?

Adrija Dutta

doi:10.36948/ijfmr.2025.v07i05.59105

What are the Determinants of Income Inequality Within and Between Countries?

Author(s)	Adrija Dutta
Country	India
Abstract	My paper on the determinants of income inequality within and between countries helped me understand the different perspectives that an economy undergoes during different stages of development. Level of inequality is one. IMF Fiscal Monitor (2017), reflected the percentage of countries experiencing changes in income inequality between 1985 and 2015. It categorizes countries into advanced economies, emerging and developing economies, and low-income developing countries.. The World Inequality Report showed that aggregate statistics hide critical inequalities both between and within countries. The top 10% of the global population takes in 52% of total income, while the bottom 50% receive only 8.5%. On average, someone in the top 10% of the global income distribution earns roughly €87,200 (USD 122,100) per year, whereas someone in the bottom half receives just €2,800 (USD 3,920) per year. More surprisingly, wealth inequality surpasses income inequality. The bottom 50% of the world's population only holds 2% of the world's total wealth; however, the rich top 10% holds a staggering 76%.Wealth inequality is more challenging to measure than income inequality, and it is also usually underestimated due to hidden assets, offshore banking, and tax loopholes (Zucman, 2015). As a result, the actual disparities might be worse than reported, especially in countries with poor financial transparency. Causal inference is methodologically difficult. Cross-country comparisons and econometric models can be insightful, but defining causality between policies and inequality is very complicated. Historical legacies, geopolitical influences, and cultural norms complicate income distribution, making it difficult to isolate factors in statistical models (Milanovic, 2016). Finally, the duration of the analysis taken, affects findings. Structural changes, such as automation, demographic changes, and climate change, happen over decades. Therefore, a shortterm study is not effective. Future studies should use longitudinal methods to analyze inequality trends in the long run for a more effective assessment of inequality and policy effectiveness.
Published In	Volume 7, Issue 5, September-October 2025
Published On	2025-10-31
DOI	https://doi.org/10.36948/ijfmr.2025.v07i05.59105

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What are the Determinants of Income Inequality Within and Between Countries?

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