Volume 7, Issue 2

The widely applied “dollar-a-day” methodology identifies global absolute poverty as declining precipitously since the early 80’s throughout the developing world. The methodological underpinnings of the “dollar-a-day” approach have been questioned in terms of adequately representing equivalent welfare conditions in different countries and years. These key issues of measuring global poverty are addressed here using the concept of the bare bones consumption basket (BBB). This methodology pinpoints equivalent levels of welfare, both internationally and intertemporally. The results validate the critique against the “dollar-a-day” methodology, showing large variations in costs of BBB between countries and years, even when one explicitly allows for additional expenses such as education and health. This volatility represents the differential among the typically used average CPI and a price index which is more relevant to those living in absolute poverty. On a point estimate level, success in terms of the first Millennium Development Goal (MDG) appears marginal. Once uncertainty in the estimates is accounted for, the BBB poverty lines provide the ground to dispute MDG 1 early celebrations. While BBB absolute poverty remains at very low levels during the entire 1983–2014 period, it also demonstrates strong persistence throughout. On the contrary, the higher welfare level BBB derivative shows overall much less flattering poverty levels.

Middle class values have long been perceived as drivers of social cohesion and growth. In this paper we investigate the relationship between class (measured by the position in the income distribution), values, and political orientations using comparable values surveys for six Latin American countries. We find that both a continuous measure of income and categorical measures of income-based class are robustly associated with values. Both income and class tend to display a similar association to values and political orientations as education, although differences persist in some important dimensions. Overall, we do not find strong evidence of any “middle class particularism”: values appear to gradually shift with income, and middle class values lay between the ones of poorer and richer classes. If any, the only peculiarity of middle class values is moderation. We also find changes in values across countries to be of much larger magnitude than the ones dictated by income, education, and individual characteristics, suggesting that individual values vary primarily within bounds dictated by each society.

This paper analyzes the relationship between inequality and the current account, addressing the role of the functional distribution of income. Using panel data for 60 countries over the period 1975–2011, our results confirm that an increase in the wage share is associated with a decrease in the current account. We also analyze the effects of wage share on saving and investment, maintaining the same control variables. We find that the wage share is negatively correlated with saving and does not have a significant effect on investment. This result is consistent with the theories that connect higher wages with greater consumption and less saving. The relationship is stronger for developing economies, highlighting the structural differences between different groups of countries. Specifically, the relevance and sign of control variables like financial intermediation, fiscal balance, demographic ratios, capital account openness and growth expectations show important differences according to the level of development.

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.

The recent proliferation of trade agreements and swelling membership of the WTO can be explained in part by the promise of faster growth and economic development that trade liberalization is supposed to deliver. But many countries enter into arrangements that fail to safeguard national health objectives. This article proposes some explanations by developing a formal model. It identifies a country’s trade negotiation capacity, the significance of its exports to its trade partners, and its public health status as important determinants of how sensitive its trade agreements are to its health concerns. Some examples are provided to illustrate the predictions of the model.