Working Paper Series On Analysing the World Distribution of Income

This paper argues that consideration of world inequality should cause us to reexamine the key concepts underlying the welfare approach to the measurement of income inequality and the inter-relation between the measurement of inequality and the measurement of poverty. There are three reasons why we feel that a reexamination is necessary: (i) the extent of global income differences means that we cannot simply carry over the methods used at a national level; we need a more flexible measure; (ii) we have to reconcile measures of world inequality and world poverty; and (iii) we need to explore more fully the different ways in which measures may be relative or absolute. This leads us to propose a new measure, which (a) combines poverty and inequality, including provision for those who are concerned only with poverty, (b) incorporates different approaches to the measurement of inequality; and (c) allows the cost of inequality to be expressed in different ways. Applied to the world distribution for the period 1820-1992, the new measure provides different perspectives on the evolution of global inequality.