The paper assesses the impact of overall inequality, as well as inequality among the poor and among the rich, on the growth rates along various percentiles of the income distribution.
... See More + The analysis uses micro-census data from U.S. states covering the period from 1960 to 2010. The paper finds evidence that high levels of inequality reduce the income growth of the poor and, if anything, help the growth of the rich. When inequality is deconstructed into bottom and top inequality, the analysis finds that it is mostly top inequality that is holding back growth at the bottom.
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Policy Research Working Paper WPS6963 JUL 01, 2014
Most countries in the world aspire to protect poorest and most vulnerable families from destitution and thus provide some type of income support to those who are very poor.
... See More + These programs are often layered into social policy along with other transfers, subsidies, or services. The way to best provide such last-resort income support (LRIS) and its role in wider social policy is a matter of some complexity, much experimentation, and much study. In Eastern Europe and Central Asia, 28 of 30 countries operate LRIS programs. This study examines the experience of LRIS programs in Eastern Europe and Central Asia. It documents the outcomes of such programs throughout the region in terms of expenditure, coverage, targeting, and simulated effects on poverty and inequality. For a subset of countries, the study documents and draws lessons from the design and implementation arrangements - institutional frameworks and administrative structures, eligibility determination, benefits and conditions, governance mechanisms, and administrative costs on the basis of information gleaned during in-depth country engagements that have extended a decade or more (Albania, Armenia, Bulgaria, the Kyrgyz Republic, Lithuania, and Romania) and other detailed work available from newer or more specific engagements (Croatia, the Russian Federation, Serbia, Ukraine, and Uzbekistan). The report is organized as follows: chapter one gives introduction. Chapter two provides an overview of the role of LRIS in the wider social assistance policies of Eastern Europe and Central Asia. Chapter three looks into the institutional and financing arrangements of the LRIS programs in the case study countries. Chapter four covers one of the two most charged issues in narrowly targeted LRIS programs - how eligibility is determined. Chapter five takes up the other charged issue in these programs - the benefit formula and how labor disincentives can be held in check with the guaranteed minimum income design. Chapter six focuses on two key elements of control and accountability systems in LRIS programs - modern management information systems and strategies to reduce error, fraud, and corruption. Chapter seven examines the administrative costs of the LRIS programs in the case study countries. Chapter eight highlights and summarizes the lessons.
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Publication 89068 JUN 24, 2014
Tesliuc, Emil; Pop, Lucian; Grosh, Margaret; Yemtsov, Ruslan
Income differences arise from many sources. While some kinds of inequality, caused by effort differences, might be associated with faster economic growth, other kinds, arising from unequal opportunities for investment, might be detrimental to economic progress.
... See More + This study uses two new metadata sets, consisting of 118 household surveys and 134 Demographic and Health Surveys, to revisit the question of whether inequality is associated with economic growth and, in particular, to examine whether inequality of opportunity -- driven by circumstances at birth -- has a negative effect on subsequent growth. The results are suggestive but not robust: while overall income inequality is generally negatively associated with growth in the household survey sample, we find no evidence that this is due to the component associated with unequal opportunities. In the Demographic and Health Surveys sample, both overall wealth inequality and inequality of opportunity have a negative effect on growth in some of the preferred specifications, but the results are not robust to relatively minor changes. On balance, although the results are suggestive of a negative association between inequality and growth, the data do not permit robust conclusions as to whether inequality of opportunity is bad for growth.
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Policy Research Working Paper WPS6915 JUN 01, 2014
Ferreira, Francisco H. G.; Lakner, Christoph; Lugo, Maria Ana; Ozler, Berk
The relationship between income inequality and crime has attracted the interest of many researchers, but little convincing evidence exists on the causal effect of inequality on crime in developing countries.
... See More + This paper estimates this effect in a unique context: Mexico's Drug War. The analysis takes advantage of a unique data set containing inequality and crime statistics for more than 2,000 Mexican municipalities covering a period of 20 years. Using an instrumental variable for inequality that tackles problems of reverse causality and omitted variable bias, this paper finds that an increment of one point in the Gini coefficient translates into an increase of more than 10 drug-related homicides per 100,000 inhabitants between 2006 and 2010. There are no significant effects before 2005. The fact that the effect was found during Mexico's Drug War and not before is likely because the cost of crime decreased with the proliferation of gangs (facilitating access to knowledge and logistics, lowering the marginal cost of criminal behavior), which, combined with rising inequality, increased the expected net benefit from criminal acts after 2005.
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Policy Research Working Paper WPS6935 JUN 01, 2014
Isolated by nature, and recovering from a period of historically low growth during the eighties and nineties, Paraguay faced many economic and social challenges at the beginning of the twenty first century.
... See More + By year 2000, Paraguay GDP per capita was only 50 percent of the Latin American average and 34 percent of its MERCOSUR partners. High poverty and inequality were an inherent characteristic of the country. Yet, between 2003 and 2013, Paraguay has performed substantially well, seeing a reduction in moderate and extreme (monetary) poverty. This is essentially the result of a period of average significant growth combined with a reduction in inequality. This report explores the factors associated to the observed improvements in welfare and inequality, and investigates the challenges facing their sustainability, given the historical structural problems of Paraguay to maintain growth and improve social indicators. The underlying question is indeed whether the growth model and reduction in inequality are consistent with a positive social dynamics, taking a comprehensive definition of equity, which includes sustainable elimination of absolute poverty, enhancing equality of opportunity and strengthening agency for all groups.
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Working Paper ACS9297 JUN 01, 2014
Garriga, Santiago; Lopez-Calva, Luis Felipe; Lugo, Maria Ana; Giopp, Alejandro Medina; Muller, Miriam; Sousa, Liliana D.
This publication begins a series that will monitor and report on social safety nets in developing countries. This first report in the series provides key social safety nets statistics and explains trends using information from 146 countries, including detailed household survey data from 69 countries in the World Bank's Atlas of Social Protection: Indicators of Resilience and Equity (ASPIRE) database.
... See More + This report reviews important policy and practical developments in social safety net programs and highlights emerging innovations. While the primary focus is on developing and emerging countries, it also includes some references to high-income settings.
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Working Paper 87984 MAY 13, 2014
Gentilini, Ugo; Honorati, Maddalena; Yemtsov, Ruslan
This paper re-examines the roles of changes in income and inequality in poverty reduction. The study provides estimates of the relative effects of inequality reduction versus growth promotion in reducing poverty for countries with different levels of initial poverty.
... See More + The analysis uses country panel-data for 1980-2010. The results indicate that, as countries become less poor, inequality-reducing policies are likely to become relatively more effective for poverty reduction than growth-promoting policies. The results indicate that the growth elasticity of poverty reduction either increases or remains constant with the level of initial poverty. Nevertheless, the results also strongly indicate that, as poverty declines, the inequality elasticity of poverty reduction increases faster. Therefore, if the marginal cost of reducing inequality relative to the marginal cost of increasing growth does not increase with lower poverty levels, to accelerate poverty reduction, greater emphasis should be given to equity rather than growth as countries attain higher levels of development.
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Policy Research Working Paper WPS6855 MAY 01, 2014
The continued poverty impact of the financial crisis in Serbia is difficult to establish beyond 2010 because of the lack of survey data. This paper tackles this difficulty.
... See More + It uses a micro-simulation approach that accounts for a key pathway of the financial crisis in Serbia, the labor market. The results suggest a further increase in poverty in 2011 on account of a continued deterioration of the labor market indicators and despite a recovering gross domestic product. In order to evaluate the forecast, the model is applied to generate forecasts for previous years (2009 and 2010), which are compared with realized poverty estimates. The micro-simulation model performs well in predicting poverty dynamics during 2009-10 and less so during 2008-09. The accuracy of the predictions improves when the response of the social protection system is accounted for.
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Policy Research Working Paper WPS6889 MAY 01, 2014
Cash transfers have been demonstrated to improve education and health outcomes and alleviate poverty in various contexts. However, policy makers and others often express concern that poor households will use transfers to buy alcohol, tobacco, or other "temptation goods."
... See More + The income effect of transfers will increase expenditures if alcohol and tobacco are normal goods, but this may be offset by other effects, including the substitution effect, the effect of social messaging about the appropriate use of transfers, and the effect of shifting dynamics in intra-household bargaining. The net effect is ambiguous. This paper reviews 19 studies with quantitative evidence on the impact of cash transfers on temptation goods, as well as 11 studies that surveyed the number of respondents who reported they used transfers for temptation goods. Almost without exception, studies find either no significant impact or a significant negative impact of transfers on temptation goods. In the only (two, non-experimental) studies with positive significant impacts, the magnitude is small. This result is supported by data from Latin America, Africa, and Asia. A growing number of studies from a range of contexts therefore indicate that concerns about the use of cash transfers for alcohol and tobacco consumption are unfounded.
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Policy Research Working Paper WPS6886 MAY 01, 2014
The 2001/02 Argentine crisis had a profound impact on Uruguay's economy. Uruguay's gross domestic product shrank by 17.5 percent and the proportion of people living below the poverty line doubled in just two years.
... See More + It took almost 10 years for the poverty rate to recover to its pre-crisis level. This paper uses a macro-micro simulation technique to simulate the impact of a similar crisis on the current Uruguayan economy. The simulation exercise suggests that Uruguay would now be in a better place to weather such a severe crisis. The impact on poverty would be considerably lower, inequality would not change significantly, and household incomes would be 8 percent lower than in the absence of a crisis (almost 9 percent lower for those households in the bottom 40 percent of the income distribution). Young individuals, female-headed households, those living in Montevideo, and those who do not have complete secondary education are more vulnerable to falling into poverty were the crisis to strike.
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Policy Research Working Paper WPS6849 APR 01, 2014
Cabanillas, Oscar Barriga; Lugo, Maria Ana; Nielsen, Hannah; Rodriguez-Castelan, Carlos; Zanetti, Maria Pia
The World Bank Africa Social Protection Strategy for 2012-22 highlights the need for a strong evidence base to inform the design and implementation of social protection programs in Africa.
... See More + Since 2009 the World Bank has conducted comprehensive social safety net assessments in 22 countries in Sub-Saharan Africa. The countries reviewed are Benin, Botswana, Burkina Faso, Cameroon, Ethiopia, Ghana, Kenya, Lesotho, Liberia, Madagascar, Malawi, Mali, Mauritania, Mauritius, Mozambique, Niger, Rwanda, Sierra Leone, Swaziland, Tanzania, Togo and Zambia. The findings of these assessments and other studies of safety net programs were recently synthesized into a regional review. This review provides an assessment of the current status of safety net programs in Africa and presents lessons on how they can be strengthened to better tackle poverty and vulnerability. The review finds that social safety nets are on the rise in Africa, and beginning to evolve from scattered stand-alone programs into safety net systems. Until recently, many African countries approached social protection on a largely ad hoc basis. Then the global economic crisis threatened recent progress in poverty reduction. Now social protection programming has started to develop from emergency food aid programs to one-off safety net interventions, and then to targeted cash transfers and cash-for-work programs. Some countries now seek to consolidate programs into national systems. There is progress towards articulating national social protection strategies, but there is still a long way to go.
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The World Bank Africa Social Protection Strategy for 2012-22 highlights the need for a strong evidence base to inform the design and implementation of social protection programs in Africa.
... See More + Since 2009 the World Bank has conducted comprehensive social safety net assessments in 22 countries in Sub-Saharan Africa. The countries reviewed are Benin, Botswana, Burkina Faso, Cameroon, Ethiopia, Ghana, Kenya, Lesotho, Liberia, Madagascar, Malawi, Mali, Mauritania, Mauritius, Mozambique, Niger, Rwanda, Sierra Leone, Swaziland, Tanzania, Togo and Zambia. The findings of these assessments and other studies of safety net programs were recently synthesized into a regional review. This review provides an assessment of the current status of safety net programs in Africa and presents lessons on how they can be strengthened to better tackle poverty and vulnerability. The review finds that social safety nets are on the rise in Africa, and beginning to evolve from scattered stand-alone programs into safety net systems. Until recently, many African countries approached social protection on a largely ad hoc basis. Then the global economic crisis threatened recent progress in poverty reduction. Now social protection programming has started to develop from emergency food aid programs to one-off safety net interventions, and then to targeted cash transfers and cash-for-work programs. Some countries now seek to consolidate programs into national systems. There is progress towards articulating national social protection strategies, but there is still a long way to go.
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In 2012, the Latin America and the Caribbean (LAC) region continued its successful drive to reduce poverty and build the middle class. The proportion of the region's 600 million people living in extreme poverty, defined in the region as life on less than $2.50 a day, was cut in half between 2003 and 2012 to 12.3 percent.
... See More + Reflecting the upward mobility out of poverty, households vulnerable to falling back into poverty became the largest group in LAC in 2005, and represent almost 38 percent of the population. However, in the last two years, the share of vulnerable households has started to decline. The middle class, currently 34.3 percent of the population, is growing rapidly and is projected to replace the vulnerable as the largest economic group in LAC by 2016. The Southern Cone region (including Brazil) continued to be the most dynamic region and the main driver of poverty reduction in LAC, while poverty in Central America and Mexico proved more stubborn. About 68 percent of poverty reduction between 2003 and 2012 was driven by economic growth, with the remaining 32 percent arising from decline in inequality. Overall, equality of access to basic childhood goods and services has improved in recent years. Yet access can be further improved, and serious issues remain concerning the quality of those goods and services, particularly in education and housing infrastructure. Moreover, access increases with parental education and income or assets, reflecting low intergenerational mobility in many countries in the region. As with poverty reduction, most of the progress in equality of access since 2000 has come in the Southern Cone and the Andean regions, while many of Central America's countries managed only small improvements. There are also severe differences at the subnational level and between urban and rural areas, highlighting the need to strengthen the capacity of local governments to deliver high quality basic services to all their citizens.
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This Research Digest newsletter includes the following headings: Shared prosperity and the mitigation of poverty; The simple algebra of the shared prosperity indicator; The global income distribution: 1988 - 2008; Narrowing the gap in India; Is workfare really cost-effective?
... See More + ; Growth still is good for the poor; and What is the effect of growth on the distribution of opportunities?
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The paper defines the Gini index as the sum of individual contributions where individual contributions are interpreted as the degree of diversity of each individual from all other members of society.
... See More + Among various possible forms of individual contributions to the Gini found in the literature, the paper shows that only one form satisfies a set of desirable properties. This form can be used for decomposing the Gini into population subgroups. An empirical illustration shows the use of this approach.
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Policy Research Working Paper WPS6763 JAN 01, 2014
This issue of the Inequality in focus newsletter contains the following topics of interest: aspiration traps: when poverty stifles hope; and, explaining the gap between facts and perceptions of inequality.
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The Dominican Republic has low economic mobility, with less than 2 percent of its people climbing to a higher income group during the decade, compared to an average 41 percent in the Latin America and Caribbean region as a whole.
... See More + Despite improving access to basic goods and services such as water and education, coverage and quality remain uneven, thus limiting the economic opportunities of many disadvantaged people. This reflects their inability to influence the system to their benefit, a manifestation of weak political agency. This report uses a comprehensive definition of "equity" which entails that citizens must have equal access to opportunities, be able to live in dignity, and have the autonomy and voice to participate fully in their communities and decide on life plans that they have reason to value. This report identifies three broad goals for addressing the underlying causes of economic inequity in the Dominican Republic: (1) promote equitable, efficient, and sustainable fiscal policy; (2) build fair, transparent, and efficient institutions that will improve the provision and quality of public goods and services, expand economic opportunities, increase upward mobility, and better protect economically vulnerable Dominicans; and (3) strengthen access of the poor to labor markets and increase the demand for their labor, so as to make efficient use of human capital and allow the poor to benefit from economic growth. The analysis presented in this study analyzes mobility within generations by measuring directional income movement, that is, the net upward or downward movement in individual incomes over time. Serious analytical efforts should be devoted to understanding the apparent disconnection between macro and micro data that hinders the ability of national statistics to accurately reflect macroeconomic and social progress.
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Working Paper 85760 JAN 01, 2014
Baez, Javier E.; Lopez-Calva, Luis Felipe; Castaneda, Andres; Sharman, Ali
The Dominican Republic has low economic mobility, with less than 2 percent of its people climbing to a higher income group during the decade, compared to an average 41 percent in the Latin America and Caribbean region as a whole.
... See More + Despite improving access to basic goods and services such as water and education, coverage and quality remain uneven, thus limiting the economic opportunities of many disadvantaged people. This reflects their inability to influence the system to their benefit, a manifestation of weak political agency. This report uses a comprehensive definition of "equity" which entails that citizens must have equal access to opportunities, be able to live in dignity, and have the autonomy and voice to participate fully in their communities and decide on life plans that they have reason to value. This report identifies three broad goals for addressing the underlying causes of economic inequity in the Dominican Republic: (1) promote equitable, efficient, and sustainable fiscal policy; (2) build fair, transparent, and efficient institutions that will improve the provision and quality of public goods and services, expand economic opportunities, increase upward mobility, and better protect economically vulnerable Dominicans; and (3) strengthen access of the poor to labor markets and increase the demand for their labor, so as to make efficient use of human capital and allow the poor to benefit from economic growth. The analysis presented in this study analyzes mobility within generations by measuring directional income movement, that is, the net upward or downward movement in individual incomes over time. Serious analytical efforts should be devoted to understanding the apparent disconnection between macro and micro data that hinders the ability of national statistics to accurately reflect macroeconomic and social progress.
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Working Paper 85760 JAN 01, 2014
Baez, Javier E.; Lopez-Calva, Luis Felipe; Castaneda, Andres; Sharman, Ali
This issue of the Inequality in focus newsletter contains the following topics of interest: aspiration traps: when poverty stifles hope; and, explaining the gap between facts and perceptions of inequality.
... See More +See Less -