Publication: The Role of Income Inequality for Poverty Reduction
Loading...
Published
2022-01-07
ISSN
0258-6770 (print)
1564-698X (online)
1564-698X (online)
Date
2024-02-23
Author(s)
Editor(s)
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.
Link to Data Set
Citation
“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.”
Digital Object Identifier
Associated URLs
Associated content
Other publications in this report series
Journal
World Bank Economic Review
1564-698X
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
No results found.
Users also downloaded
Showing related downloaded files
Publication Choosing Our Future(Washington, DC: World Bank, 2024-09-04)Education can propel faster and better climate action in two crucial ways. First, education can galvanize behavior change at scale - not just for tomorrow, but also for today. Second, education can unlock skills and innovation to shift economies onto greener trajectories for growth. At the same time, education needs to be protected from climate change. Extreme climate events and temperatures are already eroding hard-won progress on schooling and learning. Climate change is causing school closures, learning losses, and dropouts. These will turn into long-run inter-generational earnings losses putting into jeopardy education’s powerful potential for spurring poverty alleviation and economic growth. Governments can act now to adapt schools for climate change in cost-effective ways. This report outlines new data, evidence, and examples on how countries can harness education to propel climate action. It provides an actionable policy agenda to meet development, education, and climate goals together, recognizing that tackling climate change requires changes to individual beliefs, behaviors, and skills – changes that education is uniquely positioned to catalyze.Publication Community-Based and Driven Development: A Critical Review(World Bank, Washington, D.C., 2004-02)Community-based (and driven) development (CBD/CDD) projects have become an important form of development assistance, with the World Bank's portfolio alone approximating 7 billion dollars. The authors review the conceptual foundations of CBD/CDD initiatives. Given the importance of the topic, there are, unfortunately, a dearth of well-designed evaluations of such projects. But there is enough quantitative and qualitative evidence from studies that have either been published in peer-reviewed publications or have been conducted by independent researchers to glean some instructive lessons. The authors find that projects that rely on community participation have not been particularly effective at targeting the poor. There is some evidence that CBD/CDD projects create effective community infrastructure, but not a single study establishes a causal relationship between any outcome and participatory elements of a CBD project. Most CBD projects are dominated by elites and, in general, the targeting of poor communities as well as project quality tend to be markedly worse in more unequal communities. However, a number of studies find a U-shaped relationship between inequality and project outcomes. The authors also find that a distinction between potentially "benevolent" forms of elite domination and more pernicious types of "capture" is likely to be important for understanding project dynamics and outcomes. Several qualitative studies indicate that the sustainability of CBD initiatives depends crucially on an enabling institutional environment, which requires upward commitment. Equally, the literature indicates that community leaders need to be downwardly accountable to avoid a variant of "supply-driven demand-driven development." Qualitative evidence also suggests that external agents strongly influence project success. However, facilitators are often poorly trained and inexperienced, particularly when programs are rapidly scaled up. Overall, a naive application of complex contextual concepts like "participation," "social capital," and "empowerment" is endemic among project implementers and contributes to poor design and implementation. In sum, the evidence suggests that CBD/CDD is best done in a context-specific manner, with a long time-horizon, and with careful and well-designed monitoring and evaluation systems.Publication Poverty and Shared Prosperity 2022(Washington, DC : World Bank, 2022)Poverty and Shared Prosperity 2022: Correcting Course provides the first comprehensive analysis of the pandemic’s toll on poverty in developing countries. It identifies how governments can optimize fiscal policy to help correct course. Fiscal policies offset the impact of COVID-19 on poverty in many high-income countries, but those policies offset barely one quarter of the pandemic’s impact in low-income countries and lower-middle-income countries. Improving support to households as crises continue will require reorienting protective spending away from generally regressive and inefficient subsidies and toward a direct transfer support system—a first key priority. Reorienting fiscal spending toward supporting growth is a second key priority identified by the report. Some of the highest-value public spending often pays out decades later. Amid crises, it is difficult to protect such investments, but it is essential to do so. Finally, it is not enough just to spend wisely - when additional revenue does need to be mobilized, it must be done in a way that minimizes reductions in poor people’s incomes. The report highlights how exploring underused forms of progressive taxation and increasing the efficiency of tax collection can help in this regard. Poverty and Shared Prosperity is a biennial series that reports on global trends in poverty and shared prosperity. Each report also explores a central challenge to poverty reduction and boosting shared prosperity, assessing what works well and what does not in different settings. By bringing together the latest evidence, this corporate flagship report provides a foundation for informed advocacy around ending extreme poverty and improving the lives of the poorest in every country in the world. For more information, please visit worldbank.org/poverty-and-shared-prosperity.Publication World Development Report 2020(Washington, DC: World Bank, 2020)Global value chains (GVCs) powered the surge of international trade after 1990 and now account for almost half of all trade. This shift enabled an unprecedented economic convergence: poor countries grew rapidly and began to catch up with richer countries. Since the 2008 global financial crisis, however, the growth of trade has been sluggish and the expansion of GVCs has stalled. Meanwhile, serious threats have emerged to the model of trade-led growth. New technologies could draw production closer to the consumer and reduce the demand for labor. And conflicts among large countries could lead to a retrenchment or a segmentation of GVCs. This book examines whether there is still a path to development through GVCs and trade. It concludes that technological change is, at this stage, more a boon than a curse. GVCs can continue to boost growth, create better jobs, and reduce poverty provided that developing countries implement deeper reforms to promote GVC participation; industrial countries pursue open, predictable policies; and all countries revive multilateral cooperation.Publication Within Reach(Washington, DC: World Bank, 2023-11-16)Despite global commitments made through the Paris Agreement in 2015 to combat climate change, their translation into national policies has been slow, raising concerns about the feasibility of achieving climate targets. While policies face many obstacles, the political economy is one of the primary impediments to climate action, and urgency to reduce emissions makes slow and gradual approach increasingly insufficient. The report attempts to identify key political economy barriers and explore options to address them through the 4i Framework, considering how institutions, interests, ideas, and influence affect the political economy. The report offers a practical guide to help countries address political economy barriers when implementing climate policies with three prongs: (1) Climate Governance: governments can adapt their institutional framework, in ways that fit with the pre-existing political economy and moving from opportunistic and unstable to strategic and stable climate institutions. Establishing strategic climate governance institutions – such as climate change framework laws, long-term strategies, or just transition frameworks - can alter the political economy, set clear objectives, improve coordination across actors, and improve the ability to monitor progress and hold decisionmakers accountable. (2) Policy Sequencing: policies can be prioritized and sequenced based on dynamic efficiency, considering not only the economic costs and benefits, but also their feasibility and long-term impact on the political economy. The Climate Policy Feasibility Frontier tool can help identify policies that can overcome short-term political economy obstacles, and at the same time improve capacities and change the political economy to facilitate further climate action. (3) Policy Design and Engagement, considers the effective implementation of climate reforms by tactically navigating political economy constraints. This involves engaging citizens to create process legitimacy and reducing and managing distributional effects, not only across but also within income groups.