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Hidden Inequality: How Much Difference Would Adjustment for Illicit Financial Flows Make to National Income Distributions?

  • Alex Cobham , William Davis , Gamal Ibrahim and Andy Sumner EMAIL logo
Published/Copyright: June 16, 2017

Abstract

A recent innovation in measuring inequality is the incorporation of adjustments to top incomes using data from tax authorities, revealing higher inequality. The thesis of this paper is that the incorporation of estimates of income from illicit financial flows (IFF), reflecting untaxed capital, may be as significant to national inequality – but with greater variation across countries. We propose a method of adjusting national inequality data for illicit flows, and present preliminary results. These estimates suggest that untaxed illicit flows could be as important as (taxed) top incomes to estimates of inequality – highlighting the importance of improving estimates of underlying illicit flows.

JEL Classification: D31; H26

ANNEX

Table 6:

Estimates of Palma Ratio and Gini with and without adjustment for Illicit Financial Flows (full sample).

CountryYearOriginal surveyWith adjustmentAbsolute differenceRelative difference
PalmaGiniPalmaGiniPalmaGiniPalmaGini
Albania20051.3010.1621.3330.164−0.032−0.002−0.024−0.011
Albania20081.4360.1671.4760.169−0.040−0.002−0.028−0.013
Bangladesh20051.3480.1621.3820.164−0.034−0.002−0.025−0.012
Bangladesh20101.2720.1561.3470.161−0.075−0.005−0.059−0.029
Belarus20021.1080.1471.7250.182−0.616−0.036−0.556−0.242
Belarus20040.9080.1291.5380.170−0.630−0.041−0.694−0.321
Belarus20050.9860.1371.5510.172−0.565−0.035−0.573−0.257
Belarus20061.0250.1411.7100.181−0.685−0.041−0.668−0.289
Belarus20071.0410.1411.9580.193−0.917−0.052−0.881−0.371
Belarus20080.9550.1332.0810.198−1.126−0.065−1.180−0.488
Belarus20090.9900.1361.7880.184−0.798−0.049−0.806−0.358
Belarus20100.9820.1361.6530.177−0.671−0.041−0.683−0.305
Belarus20110.9180.1302.1160.200−1.198−0.070−1.305−0.540
Benin20031.7520.1881.8080.190−0.056−0.003−0.032−0.014
Bhutan20071.6840.1862.5410.220−0.856−0.034−0.508−0.184
Bolivia20026.2940.2907.1530.299−0.859−0.010−0.137−0.033
Bolivia20055.3280.2805.6610.285−0.333−0.005−0.062−0.016
Bolivia20064.8820.2734.9640.274−0.082−0.001−0.017−0.005
Bolivia20074.9970.2775.0730.278−0.076−0.001−0.015−0.004
Bosnia and Herzegovina20071.5170.1781.5320.178−0.014−0.001−0.009−0.004
Brazil20025.7370.2875.8930.289−0.157−0.002−0.027−0.007
Brazil20035.5870.2845.7820.287−0.194−0.003−0.035−0.009
Brazil20045.1510.2785.3630.281−0.212−0.003−0.041−0.011
Brazil20054.9860.2775.1520.279−0.166−0.003−0.033−0.009
Brazil20074.6170.2704.6390.270−0.0210.000−0.005−0.001
Brazil20084.3860.2664.5110.269−0.126−0.002−0.029−0.008
Brazil20094.3020.2644.4250.266−0.123−0.002−0.029−0.009
Bulgaria20031.0710.1431.4370.166−0.366−0.023−0.342−0.162
Bulgaria20070.9970.1381.2410.154−0.244−0.016−0.245−0.116
Burkina Faso20031.8440.1921.9330.196−0.089−0.004−0.049−0.021
Burkina Faso20091.8590.1932.0780.202−0.219−0.009−0.118−0.049
Burundi20061.3470.1621.6100.177−0.263−0.015−0.195−0.092
Cambodia20042.0620.2022.3360.213−0.274−0.011−0.133−0.054
Cambodia20072.3320.2142.3550.215−0.022−0.001−0.010−0.004
Cambodia20081.6910.1841.7080.184−0.016−0.001−0.010−0.004
Cambodia20091.5430.1751.5460.175−0.0030.000−0.002−0.001
Cameroon20071.7630.1902.0160.201−0.253−0.011−0.143−0.057
Central African Republic20032.2640.2132.3060.214−0.042−0.001−0.019−0.007
Chad20021.8480.1944.6810.276−2.832−0.082−1.533−0.422
Chile20034.0520.2634.1130.265−0.061−0.001−0.015−0.005
Chile20063.4780.2513.5520.252−0.074−0.002−0.021−0.007
Colombia20045.2950.2815.4110.283−0.116−0.002−0.022−0.006
Colombia20084.9990.2765.0040.277−0.0050.000−0.0010.000
Congo, Rep.20052.7650.2304.1630.265−1.399−0.035−0.506−0.151
Costa Rica20023.3590.2464.1430.263−0.784−0.017−0.233−0.069
Costa Rica20033.1950.2424.3180.266−1.123−0.024−0.351−0.100
Costa Rica20042.9850.2374.3890.268−1.404−0.031−0.470−0.133
Costa Rica20052.7730.2324.2010.266−1.428−0.034−0.515−0.147
Costa Rica20063.0400.2394.4880.271−1.448−0.032−0.476−0.135
Costa Rica20073.0390.2394.3110.268−1.271−0.029−0.418−0.123
Costa Rica20082.9790.2374.3890.270−1.410−0.032−0.473−0.137
Costa Rica20093.3330.2475.3440.286−2.011−0.039−0.603−0.159
Croatia20041.0530.1421.1630.149−0.110−0.007−0.105−0.051
Croatia20081.3560.1641.5060.172−0.149−0.008−0.110−0.051
Dominican Republic20023.2560.2433.3770.246−0.121−0.003−0.037−0.012
Dominican Republic20033.5610.2524.0200.262−0.460−0.010−0.129−0.040
Dominican Republic20043.5530.2513.7790.256−0.226−0.005−0.064−0.020
Dominican Republic20053.4050.2483.4710.249−0.067−0.002−0.020−0.006
Dominican Republic20063.5320.2513.6610.254−0.129−0.003−0.037−0.012
Dominican Republic20072.9840.2363.0250.237−0.041−0.001−0.014−0.005
Dominican Republic20083.0190.2373.1330.240−0.114−0.003−0.038−0.013
Dominican Republic20092.9980.2373.4180.248−0.420−0.011−0.140−0.046
Dominican Republic20102.7460.2303.2240.243−0.478−0.013−0.174−0.057
Ecuador20054.0990.2624.3090.266−0.210−0.004−0.051−0.015
Ecuador20083.2730.2453.8500.259−0.576−0.013−0.176−0.054
Ecuador20093.1020.2403.1170.240−0.0150.000−0.005−0.002
El Salvador20024.0330.2584.4260.265−0.393−0.007−0.097−0.027
El Salvador20033.4550.2473.6530.251−0.198−0.004−0.057−0.017
El Salvador20043.0760.2393.2520.243−0.177−0.004−0.057−0.018
El Salvador20053.3540.2453.6370.251−0.283−0.006−0.084−0.026
El Salvador20062.5970.2242.7900.230−0.193−0.006−0.074−0.026
El Salvador20072.7020.2282.9060.234−0.204−0.006−0.075−0.026
El Salvador20082.6610.2272.8280.232−0.166−0.005−0.062−0.021
El Salvador20092.9510.2353.1650.241−0.215−0.006−0.073−0.024
Fiji20022.7350.2293.4180.246−0.683−0.018−0.250−0.077
Fiji20082.1700.2072.6080.223−0.438−0.016−0.202−0.077
Gabon20052.0240.2012.4240.217−0.400−0.015−0.198−0.076
Georgia20021.9020.1972.1540.207−0.253−0.010−0.133−0.051
Georgia20031.9060.1972.2800.211−0.374−0.014−0.196−0.072
Georgia20051.9790.2002.2620.211−0.283−0.011−0.143−0.053
Georgia20061.9880.2002.3550.214−0.367−0.014−0.185−0.069
Georgia20071.8060.1921.9910.200−0.185−0.008−0.102−0.040
Georgia20082.0110.2022.3210.213−0.310−0.011−0.154−0.057
Georgia20092.0520.2032.2550.211−0.203−0.007−0.099−0.037
Georgia20102.0940.2062.2240.210−0.130−0.005−0.062−0.023
Guinea20031.8990.1952.2720.210−0.373−0.015−0.196−0.078
Guinea20071.8050.1922.4080.216−0.603−0.024−0.334−0.123
Honduras20026.0050.2858.7780.313−2.773−0.028−0.462−0.099
Honduras20035.6780.2848.1860.312−2.508−0.028−0.442−0.098
Honduras20045.5820.2838.1150.311−2.533−0.028−0.454−0.101
Honduras20056.1390.2898.8470.316−2.708−0.027−0.441−0.095
Honduras20065.3540.2797.7840.307−2.430−0.029−0.454−0.103
Honduras20074.6510.2726.5990.300−1.948−0.028−0.419−0.102
Honduras20086.9190.2959.2460.317−2.328−0.021−0.336−0.072
Honduras20095.2090.2766.9340.298−1.725−0.021−0.331−0.077
Hungary20041.1210.1471.2020.152−0.081−0.005−0.072−0.035
Hungary20071.1970.1521.2080.153−0.012−0.001−0.010−0.005
India20041.3550.1621.4510.167−0.097−0.006−0.071−0.035
India20091.3920.1641.4880.170−0.096−0.006−0.069−0.034
Indonesia20021.1350.1451.3530.159−0.218−0.014−0.192−0.099
Indonesia20051.4000.1651.5660.174−0.166−0.009−0.119−0.057
Indonesia20081.3930.1661.6290.179−0.236−0.013−0.169−0.077
Indonesia20101.4860.1741.5110.175−0.025−0.001−0.017−0.007
Jamaica200214.6690.31815.3400.321−0.672−0.003−0.046−0.009
Jamaica200214.6690.2353.0860.239−0.169−0.005−0.012−0.020
Jamaica20042.5030.2212.6870.227−0.183−0.006−0.073−0.027
Jordan20021.7680.1891.8140.191−0.046−0.002−0.026−0.011
Jordan20061.6760.1831.7200.185−0.044−0.002−0.026−0.012
Kazakhstan20031.3440.1661.4760.173−0.132−0.007−0.098−0.043
Kazakhstan20041.2470.1581.3490.164−0.102−0.006−0.082−0.038
Kazakhstan20061.1760.1501.3770.163−0.201−0.012−0.171−0.083
Kazakhstan20071.1780.1511.3330.161−0.155−0.010−0.132−0.064
Kazakhstan20081.0920.1431.3290.159−0.237−0.015−0.217−0.108
Kazakhstan20091.0660.1421.1010.145−0.035−0.002−0.033−0.017
Kenya20052.8100.2302.8700.232−0.060−0.002−0.021−0.008
Kyrgyz Republic20021.2090.1551.2540.158−0.046−0.003−0.038−0.018
Kyrgyz Republic20041.4210.1701.4490.172−0.028−0.001−0.020−0.009
Kyrgyz Republic20071.3520.1631.6260.179−0.275−0.015−0.203−0.094
Kyrgyz Republic20091.5250.1771.5920.180−0.066−0.003−0.044−0.018
Kyrgyz Republic20101.5550.1781.5890.180−0.034−0.002−0.022−0.009
Kyrgyz Republic20111.3270.1631.4940.172−0.168−0.009−0.126−0.057
Latvia20071.5330.1772.0400.200−0.507−0.023−0.331−0.130
Latvia20081.5610.1792.0350.200−0.474−0.021−0.304−0.119
Latvia20091.4170.1701.7950.189−0.378−0.019−0.267−0.109
Lesotho20023.8700.2565.6860.286−1.816−0.030−0.469−0.119
Liberia20071.6920.18512.0550.357−10.363−0.172−6.125−0.928
The former Yugoslav Republic of Macedonia20021.7450.1891.9040.196−0.160−0.007−0.092−0.036
The former Yugoslav Republic of Macedonia20031.7660.1901.9710.199−0.205−0.009−0.116−0.045
The former Yugoslav Republic of Macedonia20041.7480.1891.9900.200−0.243−0.010−0.139−0.054
The former Yugoslav Republic of Macedonia20051.7710.1922.0780.204−0.308−0.012−0.174−0.064
The former Yugoslav Republic of Macedonia20062.1730.2092.3710.216−0.198−0.007−0.091−0.033
The former Yugoslav Republic of Macedonia20082.3390.2152.8340.231−0.495−0.016−0.212−0.074
The former Yugoslav Republic of Macedonia20092.2160.2112.5070.221−0.291−0.010−0.131−0.046
The former Yugoslav Republic of Macedonia20102.2610.2132.5790.224−0.318−0.010−0.140−0.048
Madagascar20052.6420.2232.9250.232−0.283−0.010−0.107−0.043
Madagascar20102.3290.2142.3810.216−0.052−0.002−0.022−0.008
Malawi20041.7900.1891.9840.198−0.194−0.009−0.108−0.046
Malawi20102.3010.2132.6790.226−0.378−0.013−0.165−0.060
Malaysia20041.6660.1862.9520.234−1.286−0.048−0.772−0.259
Malaysia20072.5920.2254.2080.265−1.616−0.040−0.623−0.179
Malaysia20092.6270.2264.0360.261−1.410−0.035−0.537−0.156
Maldives20041.6120.1832.0030.200−0.391−0.017−0.243−0.093
Mali20061.7770.1901.9400.197−0.163−0.007−0.092−0.037
Mali20101.2940.1621.7200.185−0.426−0.023−0.329−0.139
Mexico20023.5330.2513.8240.257−0.291−0.006−0.082−0.026
Mexico20023.5330.2473.4110.254−0.266−0.007−0.075−0.030
Mexico20043.3610.2473.6740.255−0.313−0.008−0.093−0.032
Mexico20043.3610.2422.8730.249−0.273−0.008−0.081−0.033
Mexico20053.4170.2443.7590.254−0.342−0.010−0.100−0.040
Mexico20063.1610.2323.4770.240−0.316−0.009−0.100−0.038
Mexico20063.1610.2403.1710.247−0.295−0.007−0.093−0.028
Mexico20083.2900.2233.7050.231−0.416−0.008−0.126−0.037
Mexico20083.2900.2333.2640.241−0.373−0.008−0.113−0.035
Mexico20102.8120.2333.1300.243−0.318−0.010−0.113−0.044
Mexico20102.8120.2283.0410.237−0.307−0.009−0.109−0.039
Montenegro20051.1170.1482.3960.213−1.279−0.065−1.146−0.441
Montenegro20061.0640.1441.5450.173−0.482−0.029−0.453−0.201
Montenegro20071.1450.1511.7100.182−0.565−0.032−0.493−0.209
Montenegro20081.1150.1471.3880.164−0.273−0.017−0.245−0.115
Montenegro20091.1320.1481.3300.160−0.198−0.012−0.175−0.083
Montenegro20101.0200.1401.2080.152−0.188−0.012−0.184−0.088
Mozambique20022.6790.2262.8950.233−0.215−0.007−0.080−0.030
Namibia20036.6930.3046.8430.306−0.149−0.002−0.022−0.006
Nepal20032.2720.2112.4630.218−0.191−0.007−0.084−0.034
Nepal20101.2980.1601.6970.182−0.399−0.022−0.307−0.136
Nicaragua20053.6550.2524.7340.274−1.079−0.022−0.295−0.086
Nicaragua20053.6550.1972.6700.225−0.753−0.028−0.206−0.141
Nigeria20093.0150.2373.8840.258−0.869−0.021−0.288−0.089
Nigeria20111.8400.1942.0060.201−0.165−0.007−0.090−0.035
Pakistan20051.3210.1581.3270.159−0.0050.000−0.004−0.002
Panama20034.8350.2736.3380.294−1.502−0.021−0.311−0.076
Panama20044.4940.2675.9660.289−1.472−0.022−0.328−0.082
Panama20054.1990.2636.1870.293−1.988−0.030−0.473−0.115
Panama20064.4650.2676.8430.300−2.378−0.033−0.533−0.124
Panama20093.6150.2525.7220.290−2.107−0.038−0.583−0.149
Panama20103.6270.2525.1970.281−1.570−0.029−0.433−0.116
Paraguay20024.8860.2736.2790.293−1.393−0.020−0.285−0.072
Paraguay20034.7510.2746.9160.304−2.165−0.030−0.456−0.110
Paraguay20043.9700.2605.8090.291−1.839−0.032−0.463−0.121
Paraguay20053.6580.2535.7870.291−2.130−0.038−0.582−0.149
Paraguay20064.2550.2646.5940.300−2.340−0.036−0.550−0.136
Paraguay20073.8160.2565.7930.291−1.976−0.035−0.518−0.135
Paraguay20083.5740.2515.5330.287−1.959−0.036−0.548−0.145
Paraguay20093.4410.2475.4800.285−2.039−0.038−0.593−0.154
Paraguay20103.7300.2536.1500.294−2.419−0.042−0.649−0.164
Peru20063.4160.2473.4470.248−0.031−0.001−0.009−0.003
Peru20073.6090.2513.6190.251−0.0100.000−0.003−0.001
Peru20083.0860.2383.0930.238−0.0070.000−0.002−0.001
Peru20093.0990.2393.1310.239−0.032−0.001−0.010−0.003
Philippines20032.3700.2172.7780.230−0.408−0.013−0.172−0.060
Philippines20062.3090.2152.6820.227−0.373−0.012−0.161−0.057
Philippines20092.1830.2102.3380.215−0.155−0.006−0.071−0.027
Poland20021.3730.1671.3900.167−0.018−0.001−0.013−0.006
Poland20051.4290.1701.4390.171−0.010−0.001−0.007−0.003
Poland20071.3730.1661.4070.168−0.034−0.002−0.025−0.011
Poland20081.3890.1671.4920.173−0.104−0.006−0.075−0.034
Poland20091.3780.1661.4820.172−0.104−0.006−0.076−0.034
Poland20101.3520.1651.4540.171−0.101−0.006−0.075−0.034
Poland20111.2820.1601.3630.165−0.081−0.005−0.063−0.029
Romania20021.1860.1541.2450.157−0.059−0.004−0.050−0.023
Romania20031.1650.1521.1800.153−0.016−0.001−0.014−0.007
Romania20071.2450.1571.2740.159−0.029−0.002−0.024−0.011
Romania20081.1710.1521.2110.155−0.041−0.003−0.035−0.016
Romania20100.8020.1190.8050.119−0.0030.000−0.004−0.002
Russian Federation20021.4790.1751.8480.192−0.369−0.017−0.250−0.099
Russian Federation20031.6140.1822.1030.204−0.489−0.021−0.303−0.117
Russian Federation20041.5980.1822.0140.200−0.417−0.018−0.261−0.101
Russian Federation20051.6340.1842.0420.201−0.409−0.018−0.250−0.097
Russian Federation20062.0940.2052.5460.221−0.452−0.016−0.216−0.078
Russian Federation20072.2770.2122.7220.227−0.445−0.015−0.196−0.071
Russian Federation20082.1100.2052.5450.221−0.435−0.016−0.206−0.077
Russian Federation20091.8850.1952.5020.219−0.618−0.024−0.328−0.123
Rwanda20053.6210.2533.7540.257−0.133−0.003−0.037−0.013
Rwanda20103.2160.2433.5980.253−0.382−0.010−0.119−0.042
Senegal20051.7910.1911.7920.191−0.0010.000−0.0010.000
Serbia20021.2850.1592.2190.206−0.934−0.047−0.727−0.292
Serbia20031.2900.1602.3430.211−1.053−0.051−0.816−0.317
Serbia20041.2950.1612.5290.219−1.235−0.057−0.953−0.355
Serbia20051.3210.1632.1140.202−0.793−0.039−0.600−0.238
Serbia20061.0870.1451.6350.178−0.548−0.032−0.504−0.223
Serbia20071.0770.1441.4040.164−0.327−0.020−0.303−0.141
Serbia20081.0120.1381.0250.139−0.014−0.001−0.014−0.007
Serbia20090.9840.1371.4010.163−0.416−0.027−0.423−0.197
Serbia20101.0810.1451.3070.160−0.226−0.014−0.209−0.098
Sierra Leone20032.1330.2072.3440.215−0.211−0.008−0.099−0.038
Sierra Leone20111.4840.1721.7280.185−0.244−0.013−0.164−0.073
South Africa20087.0520.3067.9070.314−0.855−0.009−0.121−0.028
Sri Lanka20061.9050.1951.9210.196−0.016−0.001−0.008−0.004
Sudan20091.4470.1731.7450.187−0.297−0.014−0.205−0.083
Swaziland20093.5130.2503.6000.252−0.087−0.002−0.025−0.008
Syrian Arab Republic20041.5140.1741.9540.196−0.440−0.021−0.291−0.123
Tajikistan20031.2720.1601.5430.175−0.271−0.015−0.213−0.094
Tajikistan20041.3440.1641.6280.180−0.284−0.015−0.211−0.093
Tajikistan20071.2590.1591.5400.175−0.281−0.016−0.224−0.099
Tajikistan20091.1550.1512.0120.197−0.857−0.046−0.742−0.302
Tunisia20052.0210.2022.0250.202−0.0040.000−0.002−0.001
Turkey20022.1630.2072.1760.208−0.014−0.001−0.006−0.002
Turkey20061.9020.1971.9040.197−0.0020.000−0.0010.000
Uganda20022.5130.2202.5830.223−0.070−0.002−0.028−0.011
Uganda20052.1480.2072.4720.219−0.323−0.012−0.151−0.057
Uganda20092.3320.2142.7560.228−0.424−0.015−0.182−0.068
Ukraine20021.0160.1391.0900.144−0.074−0.005−0.073−0.037
Ukraine20031.0120.1371.0720.142−0.060−0.004−0.059−0.030
Ukraine20071.0910.1451.1040.146−0.013−0.001−0.012−0.006
Uruguay20062.7550.2302.7970.231−0.042−0.001−0.015−0.005
Uruguay20072.8190.2323.0120.237−0.192−0.005−0.068−0.023
Uruguay20102.4700.2212.7190.229−0.249−0.008−0.101−0.035
Vietnam20021.6540.1831.7640.188−0.109−0.005−0.066−0.029
Vietnam20041.5850.1801.6620.184−0.077−0.004−0.049−0.021
Vietnam20081.4890.1741.5380.176−0.048−0.003−0.032−0.014
Zambia20104.7680.2764.7690.276−0.0020.0000.0000.000
  1. Source: Authors’ estimates.

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Published Online: 2017-6-16
Published in Print: 2016-12-20

©2016 Walter de Gruyter GmbH, Berlin/Boston

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