A Note on the Global Income Distribution Curve (“The Elephant”)

In this work, our objective is to explain the decline in the income share of the middle class and the increase in the share of the wealthy - a global empirical phenomenon, commonly referred to as ”The Elephant” (Lakner & Milanovic, 2013; Milanovic, 2016) - by examining the different life-cycle income paths of heterogeneous income classes and the varying tax burden on labor and capital income. The model investigates the diverse life-cycle paths and their nonlinear behavior among the income classes under scrutiny. This approach enables us to dynamically analyze the divergence in the income distribution using one of the more important models in economics: The life-cycle and permanent-income framework.