A Note on the Global Income Distribution Curve ('The Elephant')

Area of Science:

• Economics
• Income Distribution Studies

Background:

• Global phenomenon of declining middle-class income share and rising wealthy share, known as "The Elephant" inequality.
• Existing research highlights the increasing divergence in income distribution worldwide.

Purpose of the Study:

• To explain the "Elephant" phenomenon by examining heterogeneous life-cycle income paths.
• To analyze the impact of varying tax burdens on labor and capital income across different economic classes.
• To dynamically model income distribution divergence using established economic frameworks.

Main Methods:

• Utilizing a life-cycle and permanent-income economic model.
• Investigating diverse and nonlinear life-cycle income trajectories for various income classes.
• Analyzing the differential tax burden on labor versus capital income.

Main Results:

• Identified distinct life-cycle income paths contributing to wealth concentration.
• Demonstrated how varying tax burdens exacerbate income inequality.
• Modeled the dynamic processes driving the "Elephant" income distribution.

Conclusions:

• The divergence in income distribution is explained by heterogeneous life-cycle paths and differential taxation.
• The life-cycle permanent-income framework effectively models "The Elephant" phenomenon.
• Policy implications for addressing income inequality can be derived from these findings.