Income inequality in Azerbaijan and the world: causes and approaches to its measurement - Policy paper

Members of the research group consisting of graduates of the "Young Economists" training of the Institute for Democratic Initiatives (IDI) prepared a policy paper on measuring income inequality in Azerbaijan and the world, as well as its causes.

In the first section of the study, the theoretical concept of "income inequality" and methodological issues related to the measurement of this indicator were examined. It should be highlighted that only 1% of the world's population currently controls 82% of the world's wealth. The difference between capital and labor income is the primary cause of income inequality. Numerous studies demonstrate that the pace of economic growth in a nation starts to rise as income inequality in that nation starts to decline. The two most popular indices for calculating income inequality, the Lorenz and Gini indices, were also covered in the study's first portion.

In the second part of the study, income inequality in the countries of the world is analyzed. Globalization has a negative impact on income distribution both between and within countries. According to publicly available data, the global inequality index (also known as the Gini coefficient) among the world's population is equal to 0.70 on average over the past few years. This figure was 0.63 in 1988 and 0.66 in 1993. The share of the world's richest 20% has climbed from 70% to 85% over the past 30 years, while the share of the 20% with the lowest incomes has plummeted from 23% to 1.4%. In countries like Latin America, South Africa, India, and the Arabian Peninsula, the wealthiest 10% of the population account for a disproportionately large portion of the national income.

Income inequality in Azerbaijan is analyzed in the third section of the study. The study concludes that although the data released by the State Statistics Committee show that inequality in Azerbaijan is at minimum levels, international studies do not say the same. According to the researches of international organizations, there is a four-fold difference between the education costs of the rich and the poor in Azerbaijan, and up to eight times between the health care costs.

At the end, the main results of the research and proposals for reducing the level of income inequality were presented. Four basic items are recommended to be implemented to combat inequality:

1. women's participation in economic life

2. increasing employment and quality jobs

3. increasing the level of talent and education

4. tax and transfer systems for effective redistribution

One way to decrease income inequality is by reducing mortgage rates and down payment requirements, while also imposing extra taxes on expensive luxury goods.