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The Role of Inequality for Poverty Reduction

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  • Bergstrom,Katy Ann

Abstract

Using World Bank PovcalNet data from 1974-2018 for 135 countries, this paper approximates theidentity that links growth in mean incomes and changes in the distribution of relative incomes to reductions inabsolute poverty, and, in turn, examines the role of income inequality for poverty reduction. The analysis finds thatthe assumption that income is log-normally distributed allows one to approximate the identity well. Using thisapproximation, both the growth and inequality elasticities of poverty reduction are calculated. The inequalityelasticity of poverty reduction is larger, on average, compared to the (absolute) growth elasticity of povertyreduction. Moreover, the (absolute) growth elasticity declines steeply with a country's initial level ofinequality. However, despite these results, most of the observed changes in poverty can be explained by changes inmean incomes. This is a consequence of changes in income inequality (as measured by percentage changes in thestandard deviation of log-income) being an order of magnitude smaller than changes in mean incomes. Overall, theresults 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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  • Bergstrom,Katy Ann, 2020. "The Role of Inequality for Poverty Reduction," Policy Research Working Paper Series 9409, The World Bank.
  • Handle: RePEc:wbk:wbrwps:9409
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    2. Jaime Lara Lara & Fabian Mendez-Ramos, 2021. "Poverty vulnerability: The role of poverty lines in the post-pandemic era," Economics Bulletin, AccessEcon, vol. 41(4), pages 2690-2696.
    3. Canale, Rosaria Rita & Liotti, Giorgio & Musella, Marco, 2022. "Labour market flexibility and workers’ living conditions in Europe," Structural Change and Economic Dynamics, Elsevier, vol. 62(C), pages 441-450.
    4. Baldos, Uris Lantz C., 2024. "Food inequality and climate change: compounding impacts on caloric undernutrition," 2024 Annual Meeting, July 28-30, New Orleans, LA 343904, Agricultural and Applied Economics Association.
    5. Sebastian Sir n, 2024. "Making Growth Inclusive? Do Government Transfers Moderate the Effect of Economic Growth on Absolute and Relative Child Poverty?," LIS Working papers 879, LIS Cross-National Data Center in Luxembourg.
    6. Maria Berta BELU & Silvana BOBÂRNAT (CRIVOI) & Maria Denisa VASILESCU & Eva MILITARU, 2024. "The analysis of the effects of income inequalities on the at-risk-of-poverty rate in the European Union," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(1(638), S), pages 57-68, Spring.
    7. Khanh Duong & Eoin Flaherty, 2023. "Does growth reduce poverty? The mediating role of carbon emissions and income inequality," Economic Change and Restructuring, Springer, vol. 56(5), pages 3309-3334, October.

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