Global Inequality when Unequal Countries Create Unequal People

Current global inequality measures assume that national-mean income does not matter to economic welfare at given household income, as measured in surveys. The paper questions that assumption on theoretical and empirical grounds and finds that prominent stylized facts about global inequality are not robust. At one extreme, theories of relative deprivation yield a nationalistic measure whereby global inequality is average within-country inequality, which is rising. Other theories and evidence point instead to an intrinsic value to living in a richer country. Then parameter values consistent with subjective wellbeing imply far higher global inequality than prevailing measures, though falling since 1990.