Determinants of Cross-Country Income Inequality: An ‘Augmented’ Kuznets’ Hypothesis

This paper presents an alternative hypothesis as to why income inequality differs between countries. The only currently existing hypothesis was formulated by Kuznets (1955). Kuznets’ hypothesis is briefly reviewed in Section 4.2. It provides an indispensable background to our ‘augmented’ Kuznets’ hypothesis which is formulated in Section 4.3. The empirical assessment of our hypothesis is presented in Section 4.4. The hypothesis is tested on a cross-sectional sample of 80 countries including all OECD countries, all European (former) socialist countries, and 50 African, Asian, and Latin American countries. The data are from the 1980s. Section 4.5 spells out the main conclusions and implications of our hypothesis.