many attempts to correct for this bias, often combining surveys with tax records that represent the top more accurately (Flachaire et al. 2023, Jenkins 2017, Piketty et al. 2019). Outside high-income countries, this source of data remains limited and where available provides only an incomplete picture of the top due to the absence of comprehensive personal income taxes (Van der Weide et al. 2017). In addition, it is still not obvious how best to combine survey data with administrative records, and depending on how the two are bridged, inequality estimates may change notably (Auten and Splinter forthcoming, Alvaredo et al. 2023, Flachaire et al. 2023). Therefore, it is not possible at this time to adjust all countries in PIP for the underreporting of incomes at the top. When it becomes possible to do so, the inequality estimates reported here will be revised upward and more countries will have a Gini index above 40. However, it will then also become necessary to revisit the threshold since the underlying statistic has changed.

In Annex A.1, we test if using data from the World Inequality Database (WID), which adjusts for underreporting for a subset of countries where possible, would lead to different conclusions in terms of the countries classified as in high inequality. We find that 125 of the 151 countries present in both databases would be classified identically, and that most differences do not lead to large country rerankings albeit with a dozen or so notable exceptions. Using WID, the number of countries that have moved out of the high-inequality country category follows a similar but slightly more muted pattern.

There are other factors contributing to incomparable inequality estimates across countries. For example, given that rural areas tend to have lower price levels than urban areas, it matters whether countries account for such price differences when calculating the real income or real consumption expenditure of households. Currently, it differs whether countries use such spatial deflation (Mancini & Vecchi 2022). At times, there are also comparability issues within-countries over time, as countries frequently change the survey design and consumption aggregation methodology.

# **5.** **<mark>Choice of threshold</mark>**

Regardless of the inequality measure and data source used, there are no widely accepted standards for what constitutes a high level of inequality. The World Bank has decided to classify countries with Gini coefficients greater than 40 as high inequality countries. Here we show how this threshold relates to previous definitions of high inequality, the distribution of Gini coefficients in the World Bank’s Poverty and Inequality Platform (PIP), and a poll of World Bank experts.

## _5.1 Existing definitions of high inequality_

We reviewed existing reports that have proposed cut-offs designating high inequality. The United Nations Statistics Division occasionally conducts a ‘Progress Chart’ of the Sustainable Development Goals (SDGs) in which they classify the current level of selected SDG indicators into various groups. In the 2022 edition (United Nations 2022), they classified countries as having _low inequality_ if their Gini coefficient was less than 25, _moderately low_ if between 25-30, _moderately high_ if between 30-40, _highly unequal_ if between 40 and 45, and _very high_ if above 45. They rely on PIP data, and do not distinguish between consumption and income surveys when classifying. Hence, their threshold is identical to the one proposed by the World Bank.

A UNICEF report stated, “ _it’s commonly recognized that Gini index<0.2 corresponds with perfect income equality, 0.2–0.3 corresponds with relative equality, 0.3–0.4 corresponds with a relatively reasonable income gap, 0.4–0.5 corresponds with high income disparity, above 0.5 corresponds with severe income disparity_ ” (UNICEF 2018). A World Bank report on inequality in educational outcomes cited, “ _as a rule of thumb, a Gini coefficient [of earnings] above 40 is considered unequal and one above 50 as highly unequal_ ” (Porta 2011).<sup>5</sup> UNRISD and WHO have also produced reports where Gini

> 5 Earnings inequality tend to be more unequal than consumption inequality, so a corresponding consumption inequality threshold would likely be lower.

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