How Much Does Reducing Inequality Matter for Global Poverty?

24 Pages Posted: 5 Aug 2019

See all articles by Christoph Lakner

Christoph Lakner

World Bank - Development Research Group (DECRG); University of Oxford - Department of Economics

Daniel Gerszon Mahler

World Bank

Mario Negre

Deutsches Institut für Entwicklungspolitik - German Development Institute (DIE/GDI); World Bank Research Group

Espen Beer Prydz

World Bank - Development Research Group (DECRG)

Date Written: May 30, 2019

Abstract

The goals of ending extreme poverty by 2030 and working toward a more equal distribution of income are prominent in international development and agreed upon in the United Nations' Sustainable Development Goals 1 and 10. Using data from 164 countries comprising 97 percent of the world's population, this paper simulates a set of scenarios for global poverty from 2018 to 2030 under different assumptions about growth and inequality. This allows for quantifying the interdependence of the poverty and inequality goals. The paper uses different assumptions about growth incidence curves to model changes in inequality and relies on the Model-based Recursive Partitioning machine-learning algorithm to model how growth in GDP is passed through to growth as observed in household surveys. When holding within-country inequality unchanged and letting GDP per capita grow according to International Monetary Fund forecasts, the simulations suggest that the number of extreme poor (living below $1.90/day) will remain above 550 million in 2030, resulting in a global extreme poverty rate of 6.5 percent. If the Gini index in each country decreases by 1 percent per year, the global poverty rate could reduce to around 5.4 percent in 2030, equivalent to 100 million fewer people living in extreme poverty. Reducing each country's Gini index by 1 percent per year has a larger impact on global poverty than increasing each country's annual growth 1 percentage point above the forecasts, suggesting an important role for inequality on the path to eliminating extreme poverty.

Suggested Citation

Lakner, Christoph and Mahler, Daniel Gerszon and Negre, Mario and Prydz, Espen Beer, How Much Does Reducing Inequality Matter for Global Poverty? (May 30, 2019). World Bank Policy Research Working Paper No. 8869. Available at SSRN: https://ssrn.com/abstract=3430475

Christoph Lakner (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

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HOME PAGE: http://www.worldbank.org/en/about/people/christoph-lakner

University of Oxford - Department of Economics

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Oxford, OX1 3BJ
United Kingdom

Daniel Gerszon Mahler

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Mario Negre

Deutsches Institut für Entwicklungspolitik - German Development Institute (DIE/GDI) ( email )

Tulpenfeld 4
Bonn, 53113
Germany

World Bank Research Group ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

Espen Beer Prydz

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

HOME PAGE: http://www.worldbank.org/en/about/people/espen-beer-prydz

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