Concentration of income and human development: the role of the middle class

Abstract

In this paper, we reassess the relationship between inequality and human development, focusing on the differential role of concentration of income at different parts of the distribution. To do so, we rely on a large global panel of countries over the last decades including information on economic and human development, as well as detailed information on the distribution of income within countries. We show how the concentration of income at the bottom and top, rather than overall inequality, is negatively associated with human development. This result highlights the relevance of income shares that go to the middle part of the income distribution and seems especially important in what refers to human capital accumulation in middle- and low-income countries, and health in high-income countries. Our main results remain significant under different specifications and estimation techniques and after controlling for several country-specific characteristics, including the quality of institutions.