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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Main Author:	Bergstrom, Katy
Format:	Working Paper
Language:	English
Published:	World Bank, Washington, DC 2020
Subjects:	MEAN INCOME HEADCOUNT POVERTY INEQUALITY POVERTY LINE POVERTY RATE ELASTICITY
Online Access:	http://documents.worldbank.org/curated/en/969971600710472848/The-Role-of-Inequality-for-Poverty-Reduction http://hdl.handle.net/10986/34507

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recordtype	oai_dc
spelling	okr-10986-345072022-09-20T00:09:45Z The Role of Inequality for Poverty Reduction Bergstrom, Katy MEAN INCOME HEADCOUNT POVERTY INEQUALITY POVERTY LINE POVERTY RATE ELASTICITY 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. 2020-09-24T20:45:02Z 2020-09-24T20:45:02Z 2020-09 Working Paper http://documents.worldbank.org/curated/en/969971600710472848/The-Role-of-Inequality-for-Poverty-Reduction http://hdl.handle.net/10986/34507 English Policy Research Working Paper;No. 9409 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English
topic	MEAN INCOME HEADCOUNT POVERTY INEQUALITY POVERTY LINE POVERTY RATE ELASTICITY
spellingShingle	MEAN INCOME HEADCOUNT POVERTY INEQUALITY POVERTY LINE POVERTY RATE ELASTICITY Bergstrom, Katy The Role of Inequality for Poverty Reduction
relation	Policy Research Working Paper;No. 9409
description	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.
format	Working Paper
author	Bergstrom, Katy
author_facet	Bergstrom, Katy
author_sort	Bergstrom, Katy
title	The Role of Inequality for Poverty Reduction
title_short	The Role of Inequality for Poverty Reduction
title_full	The Role of Inequality for Poverty Reduction
title_fullStr	The Role of Inequality for Poverty Reduction
title_full_unstemmed	The Role of Inequality for Poverty Reduction
title_sort	role of inequality for poverty reduction
publisher	World Bank, Washington, DC
publishDate	2020
url	http://documents.worldbank.org/curated/en/969971600710472848/The-Role-of-Inequality-for-Poverty-Reduction http://hdl.handle.net/10986/34507
_version_	1764481049725763584

The Role of Inequality for Poverty Reduction

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