# **1 Introduction**

Cross-sectional facts on the distribution of consumption, income, and wealth (CIW) are readily available for a large set of modern industrialized economies, see the special issue of the _Review of Economic Dynamics_ on “Cross Sectional Facts for Macroeconomists” (Krueger et al. (2010)) and the more recent studies of D ́ıaz-Gim ́enez et al. (2011) and Piketty (2014). Such distributional facts have been extensively used to build and test macroeconomic theories that incorporate heterogeneous household saving behavior for the study of, almost invariably, rich economies (Heathcote et al. (2009)). For these macroeconomic frameworks to be useful in poor countries they need to be fully contextualized and informed by the behavior of households in these countries. Hence, a good understanding of household-level CIW inequality for poor countries is required and to date has been missing. The main contribution of this paper is to help close this gap by providing a careful and comprehensive dissection of CIW behavior in three of the poorest countries in the world in 2010 — Malawi, Tanzania and Uganda — using new and unique nationally representative data. To construct the whole distribution of CIW a series of technical issues had to be addressed: converting consumption from own production into kilograms, deseasonalizing consumption, and assigning a monetary value to the agricultural production that is not sold on the market.

To gain a perspective on the relative poverty of the countries investigated note that in 2010, income per capita was US$359 in Malawi, US$524 in Tanzania, and US$471 in Uganda. That is, our households live with country averages below (or close to) US$1 per capita per day, and less so in rural areas, where the overwhelming majority of the population lives: 84% in Malawi, 71% in Tanzania, and 85% in Uganda.<sup>1</sup> For comparison purposes, in Mexico, the poorest country studied in Krueger et al. (2010), the income per capita in 2010 was US$8,920 and the population living in rural areas was 22%. In Thailand, a country extensively investigated in the development literature, these figures were US$4,802 and 56% respectively.

Our main finding is a large and widespread inability to accumulate wealth in both rural and, to a lesser extent, urban areas of Sub-Saharan Africa (SSA). First, while income dispersion in SSA is of similar magnitude to that of the US and Europe, wealth inequality in SSA is close to one-third that of the US.<sup>2</sup> Further, while the transmission from income to wealth inequality is not apparent from the separate inspection of their respective distributions, our study of the joint behavior of income and wealth suggests a substantially lower transmission in SSA than in the

> 1Indeed, Malawi is currently the poorest country in the world in terms of income per capita according to the 2014 World Development Indicators (World Bank). Malawi has been disputing this unfortunate position over the past 10 years with the Democratic Republic of Congo and Niger, also sub-Saharan African countries.

> 2For these cross-sectional comparisons between SSA and the US we largely draw from the US statistics reported in D ́ıaz-Gim ́enez et al. (2011) and Piketty (2014).

2