Explaining Inequality the World Round: Cohort Size, Kuznets Curves, and Openness

Klaus Deininger and Lyn Squire have recently produced an inequality data base for a panel of countries from the 1960s to the 1990s. We use these data to decompose the sources of inequality into three central parts: the demographic or cohort size effect; the so-called Kuznets Curve or demand effects; and the commitment to globalization or policy effects. We also control for education supply, the so-called natural resource curse and other variables suggested by the literature. While the Kuznets Curve comes out of hiding when the inequality relationship is conditioned by the other two, cohort size seems to be the most important force at work. We resolve the apparent conflict between this macro finding on cohort size and the contrary implications of recent research based on micro data. JEL Classification O1 J1 I3 Matthew Higgins Jeffrey G. Williamson International Economics Function Department of Economics Federal Reserve Bank of New York 216 Littauer Center Federal Reserve P.O. Station Harvard University New York, New York 10045 Cambridge, MA 02138