countries, the analysis in this essay will use household surveys. It is well known that household surveys do a poor job at capturing top incomes and there is no reason why this issue should be any less severe in developing countries. Furthermore, as I will discuss in more detail below, household surveys in poor countries tend to use consumption expenditures – not incomes – which understates living standards at the top and thus understates levels (and possibly also trends) of inequality. Finally, those emerging economies which use income surveys typically do not capture capital incomes, and information on wealth – the very topic of C21 – is practically non-existent. Paraphrasing Atkinson and Bourguignon (2015), it is important to be very clear about what the data can and cannot say, while at the same time not rejecting all evidence on the grounds of imperfect measurement.

The available evidence suggests that the Gini index of the global distribution of income has fallen for the first time since the Industrial Revolution, a development that is likely to continue. This decline was driven by falling inequality between countries, i.e. average incomes converged across countries. This is likely to continue, leading to further declines in global inequality. But this reduction was counteracted by an increase in (population-weighted) within-country inequality, such that the average person lived in a country where inequality was increasing. Looking at only developing countries, average national inequality increased during the 1980s and the 1990s while it declined in the 2000s. This recent fall was driven by Latin America, while China appears to have plateaued. The changes in global and within-country inequality coincided with rapid globalization since the late 1980s, enabled by technological change. It seems that globalization has had important distributional effects (within countries and globally), and between skilled and unskilled labor, as well as between capital and labor.

This essay is structured in six main sections. I begin with describing the global distribution and trends in global inequality, drawing mostly on Lakner and Milanovic (2016). Section II moves from global inequality to inequality within-countries, especially within developing countries. In Section III, I discuss the role of globalization and technology in explaining some of these patterns. Policy implications are presented in Section IV. In Section V, I offer some predictions on the likely future direction of global inequality. Section VI concludes and outlines an agenda for future research on inequality in developing countries.

# **I. The global distribution and trends in global inequality**

The analysis of the global distribution presented in this essay is based on joint research with Branko Milanovic (Lakner and Milanovic, 2016). We are interested in measuring the inequality of disposable income among all people in the world. Income is measured at the household level and every household member is assigned an equal share. Incomes are compared across countries using purchasing power parity (PPP) exchange rates to account for differences in price levels. Our data are based on household surveys that have only become widely available in the developing world during the late 1980s. Therefore, our analysis begins in 1988, a much shorter time span than C21 is considering. Given our data sources we need to make two further approximations: First, because 3