Income inequality and the oil resource curse

• Oil resources decrease inequality for moderate levels of oil affluence.
• Oil-rich countries under-report data on income inequality.
• Our results are robust once correcting for the sample selection bias

Surprisingly, there has been little research conducted about the cross-country relationship between oil dependence/abundance and income inequality. At the same time, there is some tentative evidence suggesting that oil rich nations tend to under-report data on income inequality, which can potentially influence the estimated empirical relationships between oil richness and income inequality. In this paper we contribute to the literature in a twofold manner. First, we explore in depth the empirical relationship between oil and income inequality by making use of the Standardized World Income Inequality Database – the most comprehensive dataset on income inequality providing comparable data for the broadest set of country-year observations. Second, this is the first study to our knowledge that adopts an empirical framework to examine whether oil rich nations tend to under-report data on income inequality and the possible implications thereof. We make use of Heckman selection models to validate the tendency of oil rich countries to under-report and correct for the bias that might arise as a result of this – we find that oil is associated with lower income inequality with the exception of the very oil-rich economies.