Reproducibility package for Measuring Income Inequality And Redistribution In Low-Income Countries: Evidence From Nepal

Inequality statistics in low-income countries typically rely on consumption data, limiting comparability with income inequality measures used in middle- and high-income countries. This is mainly because measuring the distribution of income is challenging in low-income countries due to the prevalence of informality, misreporting, and conceptual issues. This paper combines rich survey microdata, government budget data, and a novel correction method for the underrepresentation of top incomes to construct pretax and post tax inequality statistics in the context of Nepal. After correcting top incomes and accounting for missing capital income, income inequality in Nepal is 80% higher than consumption inequality, shifting Nepal from being more equal than France to almost as unequal as Latin American countries such as Guatemala, Honduras, or Peru. Taxes and transfers have limited impact on inequality due to regressive consumption taxes and poorly targeted social programs. Our income estimates fall close to aggregate output recorded in the national accounts, suggesting that the construction of inequality statistics consistent with macroeconomic growth is feasible even in low-income countries with scarce data. Our methodology only requires a household survey and aggregate tax revenue series by type of tax, making it easily applicable across a wide range of countries.