The Role of Inequality for Poverty Reduction
Using World Bank PovcalNet data from 1974-2018 for 135 countries, this paper approximates the identity that links growth in mean incomes and changes in the distribution of relative incomes to reductions in absolute poverty, and, in turn, examines t...
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| Language: | English |
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World Bank, Washington, DC
2020
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| Online Access: | http://documents.worldbank.org/curated/en/969971600710472848/The-Role-of-Inequality-for-Poverty-Reduction http://hdl.handle.net/10986/34507 |
| Summary: | Using World Bank PovcalNet data from
1974-2018 for 135 countries, this paper approximates the
identity that links growth in mean incomes and changes in
the distribution of relative incomes to reductions in
absolute poverty, and, in turn, examines the role of income
inequality for poverty reduction. The analysis finds that
the assumption that income is log-normally distributed
allows one to approximate the identity well. Using this
approximation, both the growth and inequality elasticities
of poverty reduction are calculated. The inequality
elasticity of poverty reduction is larger, on average,
compared to the (absolute) growth elasticity of poverty
reduction. Moreover, the (absolute) growth elasticity
declines steeply with a country's initial level of
inequality. However, despite these results, most of the
observed changes in poverty can be explained by changes in
mean incomes. This is a consequence of changes in income
inequality (as measured by percentage changes in the
standard deviation of log-income) being an order of
magnitude smaller than changes in mean incomes. Overall, the
results highlight the important role income inequality can
play in reducing poverty even if prior poverty changes have,
in large part, been a consequence of economic growth. |
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