Inequality

This paper reviews five striking facts about inequality across countries. As Kuznets (1955) famously
first documented, inequality first rises and then falls with income. More unequal societies are much
less likely to have democracies or governments that respect property rights. Unequal societies have
less redistribution, and we have little idea whether this relationship is caused by redistribution
reducing inequality or inequality reducing redistribution. Inequality and ethnic heterogeneity are
highly correlated, either because of differences in educational heritages across ethnicities or because
ethnic heterogeneity reduces redistribution. Finally, there is much more inequality and less
redistribution in the U.S. than in most other developed nations.