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In the last couple of decades, the opening and integration of markets—what we loosely call “globalization”—has helped hundreds of millions of people in developing countries enter the middle class, bringing material security and optimism for their children’s futures. At the same time, middle classes in developed economies feel under threat and pessimistic about their families’ opportunities. CGD aims to understand this divergence in attitudes and suggest solutions.
A large proportion of revenue gains over the last two decades has come from countries’ efforts to improve the design and compliance of consumption and other indirect taxes, particularly the VAT (value-added tax); in doing so, the objective has been to minimize VAT’s regressive effects by exempting sales of small businesses below a threshold (where the poor typically tend to buy) as well as imposing zero tax on certain food and other products which take up a large proportion of consumption of poor households. Less attention has gone to expanding the coverage of potentially more progressive taxes, such as personal income and property taxes.
Mohamed Bouazizi is the man whose protest sparked the Arab Spring in December 2010. Bouazizi was a typical “struggler,” as in the title of my keynote speech at the Australasian Aid conference several weeks ago: “Strugglers: This Century’s New Development Challenge.” Below is a rough summary of my talk.
Recently, the World Bank published its latest Global Economic Prospects report, which highlights a welcomed cyclical recovery for all major regions of the world following recent slow growth. I was pleased to participate in a panel discussion at CGD analyzing the report’s findings, and to share my perspectives both on its implications and on future global outlooks—especially for emerging market and developing economies.
Globalization is under attack in the West. The debate among pundits is no longer about whether globalization is to blame or not. It is about why globalization is now the bugaboo it has become. A common thread are changes, for the worse, in the economic and social standing of the Western middle class.
The two economic developments that have garnered the most attention in recent years are the concentration of massive wealth in the richest one percent of the world’s population and the tremendous, growth-driven decline in extreme poverty in the developing world, especially in China. But just as important has been the emergence of large middle classes in developing countries around the planet. This phenomenon—the result of more than two decades of nearly continuous fast-paced global economic growth—has been good not only for economies but also for governance. After all, history suggests that a large and secure middle class is a solid foundation on which to build and sustain an effective, democratic state. Middle classes not only have the wherewithal to finance vital services such as roads and public education through taxes; they also demand regulations, the fair enforcement of contracts, and the rule of law more generally—public goods that create a level social and economic playing field on which all can prosper.
PovcalNet, the World Bank’s global poverty database, provides all kinds of country statistics, including mean income, the share (and number) of the population living in absolute poverty ($1.90), the poverty gap and several measures of income inequality, such as the Gini coefficient. But one thing it doesn’t provide is median income or consumption. The median is a better measure of “typical” well-being than the mean, which is always skewed to the right.
We’ve been waiting for the World Bank to add these medians to its PovcalNet database, but we got impatient and did it ourselves. By manually running a few hundred queries in PovcalNet, we now have (and can share with you) the latest median income/consumption data for 144 countries (using 2011 PPPs — more on our methods below).