Inequality, Income, and Poverty: Comparative Global Evidence

Objectives. The study seeks to provide comparative global evidence on the role of income inequality, relative to income growth, in poverty reduction. Methods. An analysis‐of‐covariance model is estimated using a large global sample of 1980–2004 unbalanced panel data, with the headcount measure of poverty as the dependent variable, and the Gini coefficient and PPP‐adjusted mean income as explanatory variables. Both random‐effects and fixed‐effects methods are employed in the estimation. Results. The responsiveness of poverty to income is a decreasing function of inequality, and the inequality elasticity of poverty is actually larger than the income elasticity of poverty. Furthermore, there is a large variation across regions (and countries) in the relative effects of inequality on poverty. Conclusion. Income distribution plays a more important role than might be traditionally acknowledged in poverty reduction, though this importance varies widely across regions and countries.