This discussion of absolute versus relative gains links directly to the choice between absolute and relative measures of inequality (Kolm, 1976).<sup>41</sup> All the standard measures of inequality considered so far are relative measures of inequality (Table 2, Panel A). In Panel D of Table 2, we report the absolute Gini index which increased by almost 25% over this period, consistent with Figure 7.<sup>42</sup> In sum, whether one thinks that inequality increased moderately (e.g. Gini increased by 8.6%) or very strongly (e.g. absolute Gini increased by 25%), depends on whether one cares about relative or absolute gains.<sup>43</sup>

# **VII. Using GDP per Capita Instead of Survey Consumption**

Splitting countries according to their GDP per capita reflects these patterns in the African distribution only to some extent.<sup>44</sup> There are of course very good reasons for this, such as definitional differences, or the fact that GDP per capita does not reflect distributional characteristics.<sup>45</sup> There exists an extensive literature on the gap between national accounts and household survey consumption or income, which we do not intend to review here.<sup>46</sup> For example, Figure 8 plots the national accounts gap across countries in 2008.<sup>47</sup> It is clear that the gap is larger in upper middle countries compared with low income countries. Furthermore, six of the ten countries with the largest gap are natural resource rich. It is important to recognize that the World Bank’s Twin Goals are direct measures of individual welfare (based on household surveys), and constitute a move away from focusing exclusively on low-middle-high income country status or GDP growth.<sup>48</sup> 41 Standard inequality measures, such as the Gini index, are relative or scale-invariant. This means that they are unchanged by a proportional transformation, such as a doubling of all incomes. However, such a change would increase the absolute gap between individuals, and thus increase absolute measures of inequality. An absolute measure is translation-invariant, i.e. it is unchanged by an additive change, such as adding $100 to everyone’s incomes.

42 The absolute Gini is defined as ���������������������, where ������� is the relative Gini and �� is the mean.

43 The empirical evidence as to whether individuals perceive inequality as absolute or relative is mixed (Amiel and Cowell, 1999; Ravallion, 2004).

44 Below we use GDP and GNI per capita interchangeably, as the main point we make pertains to the use of national accounts based measures more generally.

45 Because GDP per capita does not reflect within-country inequality, it cannot be used to derive a measure of regional interpersonal inequality. This is an example of a concept 1 type measure, using the Milanovic (2005) classification reviewed in the introduction.

46 National accounts based measures of per capita household consumption typically exceed those measured in household surveys (Deaton, 2005). Especially relevant for our paper, there exists a substantial strand of the global inequality literature which anchors a country’s mean income to GDP per capita (Bourguignon and Morrisson, 2002; Sala-i Martin, 2006; Chotikapanich et al., 2012; Pinkovskiy and Sala-i-Martin, 2014; Chotikapanich et al., 2015). Anand and Segal (2008) argue that GDP per capita is not an appropriate measure of household income. Furthermore, Lakner and Milanovic (2015) suggest that the national accounts gap is unlikely to be distributionally neutral, and could be related to the underestimation of top incomes in household surveys.

47 The gap is defined as the ratio of mean per capita consumption from household surveys to GDP per capita.

48 The World Bank’s Twin goals are defined respectively as (1) “reducing to no more than 3 percent the fraction of the world’s population living on less than $1.25 per day”, and (2) “shifting from a focus on average economic growth to promoting income growth among the bottom 40 percent of people [in every country]” (World Bank, 2014). Atkinson (2013) suggests that economic performance should be assessed by a new indicator that is a more direct measure of household living standards and also accounts for distributional characteristics. Such arguments are closely related to 19