Publication: The Role of Income Inequality for Poverty Reduction
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Date
2022-01-07
ISSN
0258-6770 (print)
1564-698X (online)
1564-698X (online)
Published
2022-01-07
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Abstract
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 examines the role of income inequality for poverty reduction. Under the assumption that income is log-normally distributed, we show that we can approximate this identity well. We find that the inequality elasticity of poverty reduction is larger, on average, compared to the growth elasticity of poverty reduction and that the growth elasticity declines steeply with a country’s initial level of inequality. However, we find that prior changes in poverty were, in large part, explained by changes in mean incomes. This is a consequence of changes in income inequality being an order of magnitude smaller than changes in mean incomes. Overall, our results highlight the important role income inequality can play in reducing poverty despite prior poverty changes being, in large part, a consequence of economic growth.
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“Bergstrom, Katy. 2022. The Role of Income Inequality for Poverty Reduction. World Bank Economic Review. © World Bank. http://hdl.handle.net/10986/41094 License: CC BY-NC-ND 3.0 IGO.”
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World Bank Economic Review
1564-698X
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- Cited 15 times in Scopus (view citations)
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