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AttributionPlease cite the work as follows: World Bank. 2016. Poverty and Shared Prosperity 2016:
Taking on Inequality. Washington, DC: World Bank. doi:10.1596/978-1-4648-0958-3. License: Creative
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Contents
Foreword ix
Acknowledgments xi
About the Core Team and the Contributors xiii
Abbreviations xvii
Overview 1
Notes 19
References 20
2 Global Poverty 35
Monitoring global poverty 35
A prole of the poor in the developing world 42
Annex 2A Historical global and regional poverty estimates 46
Annex 2B Technical note: global poverty measurement using 2013 data 47
Notes 50
References 51
3 Shared Prosperity 53
Shared prosperity: where we stand 53
The bottom 40 in relative terms: the shared prosperity premium 56
Incomes of the bottom 40 and the top 10: the Palma premium 57
Who are the bottom 40? 57
Is the poverty goal attainable at current levels of growth and
shared prosperity? 59
Conclusions: continued progress, but no room
for complacency 62
v
Annex 3A Shared prosperity estimates based on the latest surveys,
by country, circa 200813 64
Notes 66
References 67
4 Inequality 69
Inequality matters 69
Separating fact from myth: what is the evidence on inequality? 75
Concluding remarks 87
Annex 4A Data construction 89
Global inequality database 89
Database of within-country Gini indexes 89
Notes 91
References 95
Figures
O.1 Distribution of the Extreme Poor, 2.3 Regional and World Trends, Number
the Nonpoor, the Bottom 40, of the Extreme Poor, 19902013 38
and the Top 60, 2013 2 2.4 Regional and World Trends,
O.2 World and Regional Trends, Poverty Extreme Poverty Headcount Ratio,
Headcount Ratio, 19902013 5 19902013 39
O.3 Trends in the Global Poverty 2.5 Poverty Headcount Ratios and
Headcount Ratio and the Number Number of the Poor, by Country
of the Global Poor, 19902013 5 Income, 2013 40
O.4 Where Are the Global Poor Living? 2.6 Poverty Headcount Ratios, Top 10
The Global Poor, by Region, 2013 6 Countries, 2013 41
O.5 Prole of the Poor, by Characteristics 2.7 Number of the Poor, Top 10
and Region, 2013 6 Countries, 2013 41
O.6 Age Prole of the Poor, 2013 7 2.8 Trends in the Poverty Gap and the
O.7 Shared Prosperity, 83 Countries, Global Headcount Ratio, 19902013 42
200813 8 2.9 Prole of the Poor, by Characteristics
O.8 Boosting Shared Prosperity and and Region, 2013 44
Ending Poverty, 10-Year Scenario, 2.10 Prole of the Extreme and Moderate
201330 9 Poor, by Selected Characteristics,
O.9 Global Inequality, 18202010 9 2013 44
O.10 Global Inequality, 19882013 10 2.11 Age Prole of the Poor, 2013 45
O.11 Average Within-Country Inequality, 3.1 Shared Prosperity, 83 Countries,
19882013 10 200813 55
O.12 Trends in the Average National Gini, 3.2 The Bottom 40, Brazil, India,
by Region, 19882013 11 and the United States, Circa 2013 58
O.13 The National Income Share of the B3.1.1 Distribution of the Extreme Poor,
Richest 1 Percent, Selected Economies 12 the Nonpoor, the Bottom 40,
O.14 Available Country Poverty Estimates, and the Top 60, 2013 59
Number, by Region and Year 19 3.3 Income Group Composition, the
1.1 Available Country Poverty Estimates, Bottom 40, Selected Countries,
by Region and Year 28 Circa 2013 60
1.2 Availability of Poverty Data, by All 3.4 Boosting Shared Prosperity and
Possible 10-Year Periods, 19902013 28 Ending Poverty, 201330 62
1.3 Double and Triple Dips in Growth, 4.1 Growth of the Bottom 40 versus
Selected Economies, 200615 30 Growth at the Mean, 200813 72
2.1 The Global Poverty Headcount Ratio B4.2.1 Actual versus Anticipated Feelings of
and the Number of the Extreme Poor, Well-Being, Middle East and North
19902013 36 Africa 74
2.2 Where Are the Global Poor Living? 4.2 The Top 1 Percent Income Share,
The Global Poor, by Region, 2013 37 Selected Economies 76
CONTENTS vii
4.3 Global Income Inequality, 5.6 Contributions of Growth and
18202010 76 Redistribution Effects to Poverty
4.4 Long-Run Changes in the Gini Reduction, Cambodia, 200812 108
Index, Selected Developing 5.7 Trends in the Gini Index, Mali,
Countries, 19802014 77 200110 111
B4.3.1 Comparing Absolute and Relative 5.8 Growth Incidence Curve, Mali,
Gains across the Distribution 78 200110 112
B4.4.1 Levels of Income and Consumption, 5.9 Contributions of Growth and
Gini Indexes, 2013 79 Redistribution Effects to Poverty
B4.4.2 Trends in Income and Consumption, Reduction, Mali, 200609 112
Gini Indexes, Circa 200813 79 5.10 Trends in the Gini Index, Peru,
B4.5.1 Comparison of Top Incomes and the 200414 115
Gini Index, Brazil, 200612 80 5.11 Growth Incidence Curve, Peru,
4.5 Global Inequality, 19882013 81 200414 115
4.6 Average Within-Country Inequality, 5.12 Contributions of Growth and
19882013 83 Redistribution Effects to Poverty
4.7 Trends in the Average Gini, by Reduction, Peru, 200414 115
Region, 19882013 83 5.13 Trends in the Gini Index, Tanzania,
4.8 The Gini Index, 101 Countries, 200112 117
2013 84 5.14 Growth Incidence Curve, Tanzania,
4.9 Distribution of the Gini Index, 200712 118
2013 85 5.15 Contributions of Growth and
4.10 Trends in the Within-Country Gini Redistribution Effects to Poverty
Index, 19932013 86 Reduction, Tanzania, 200712 118
5.1 Trends in the Gini Index, Brazil, 6.1 The Mental Development of
19812014 104 Stunted Children, Jamaica, 198687 132
5.2 Growth Incidence Curve, Brazil, 6.2 Median Coverage, Selected Health
200414 104 Care Interventions, by Wealth
Quintile, Low- and Middle-Income
5.3 Contributions of Growth and
Countries, Circa 200513 136
Redistribution Effects to Poverty
Reduction, Brazil, 200414 105 6.3 Mathematics Scores, by Household
Income Level, Selected Countries,
5.4 Trends in the Gini Index, Cambodia,
Circa 200711 139
200713 107
6.4 Simulated Gini Point Reduction
5.5 Growth Incidence Curve, Cambodia,
in the Gini Index Attributable
201213 108
to CCTs, Circa 2013 141
Tables
O.1 World and Regional Poverty 3A.1 Shared Prosperity Estimates,
Estimates, 2013 4 Circa 200813 64
2.1 World and Regional Poverty 4.1 Countries with an Increasing or
Estimates, 2013 36 Decreasing Gini Index and the
2A.1 Historical Trends, World Extreme Average Gini 86
Poverty Estimates, 19902013 46 4A.1 Population Coverage of the Data
2A.2 Historical Trends, Regional Poverty Used in the Global Inequality
Headcount Ratios, 19902013 46 Estimates 89
2A.3 Historical Trends, Number of 4A.2 Population Coverage of the Data
Extreme Poor, by Region, Used in the Analysis 90
19902013 46 5.1 Annualized per Capita GDP
2B.1 Poverty Estimates Based on Chinas Growth and Reductions in
Old Survey Methodology, 2013 49 Inequality, Selected Countries 103
3.1 Shared Prosperity, Circa 200813 54 5.2 Typology of Poverty and Inequality
Levels, Selected Countries,
Circa 2013 103
The World Bank Groups goals are clearwe are committed to ending extreme poverty by
2030 and boosting shared prosperity of the bottom 40 percent of populations in every coun-
try. If we are to reach our goals, its crucial to report on both the progress and the barriers
to improving peoples lives.
We have created the Poverty and Shared Prosperity annual agship series to do just
that, providing the latest and most accurate statistics and analysis on extreme poverty and
shared prosperity.
As we work toward the end-poverty goal in 2030, its important to remember that the
developing world has made unprecedented progress in reducing extreme poverty. Since
1990, nearly 1.1 billion people have lifted themselves out of extreme poverty. In areas rang-
ing from child survival to primary school enrollments, the improvements to peoples lives
have advanced with a momentum that few could have imagined when the World Bank was
founded more than 70 years ago.
But today we face a powerful threat to progress around the world: Inequality.
High income inequality is hardly new in human history. But today, inequality is constrain-
ing national economies and destabilizing global collaboration in ways that put humanitys
most critical achievements and aspirations at risk. This includes the goal of ending extreme
poverty by 2030.
That is why this rst Poverty and Shared Prosperity report took a deeper look at inequal-
itymaking the case for action by explaining the benets for countries in closing persistent
gaps. More equal countries tend to have healthier people and be more economically ef-
cient than highly unequal countries. And countries that invest smartly in reducing inequality
today are likely to see more prolonged economic growth than those that dont. Less in-
equality can benet the vast majority of the worlds population.
The last part of this report describes the successful strategies that many countries are
already using to ght inequality. World Bank Group economists have conducted a com-
prehensive review of policies that can raise the incomes of the poor, analyzed a vast body
of evidence, and singled out some of the policies that are well known to work best. Their
results offer policy options that can be relevant for most countries in the world.
Whether youre a government leader, an entrepreneur, an activist, or a frontline service
provider, my hope is that this report will inform your decisions and inspire you to make your
actions count.
Thank you for your work to build a fairer, more equal, and more prosperous future for all.
This report has been prepared by a team led by Jos Cuesta and Mario Negre and com-
prising Timm Bnke, Soumya Chattopadhyay, Shaohua Chen, Will Durbin, Mara Eugenia
Genoni, Aparajita Goyal, Christoph Lakner, Terra Lawson-Remer, Maura K. Leary, Renzo
Massari, Jose Montes, David Newhouse, Stace Nicholson, Espen Beer Prydz, Maika
Schmidt, and Ani Silwal.
The work has been carried out under the general supervision of Francisco H. G. Ferreira
and Ana Revenga and the guidance of Kaushik Basu and Jan Walliser. World Bank President
Jim Yong Kim was an invaluable source of encouragement to the team.
Kathleen Beegle, Branko Milanovic, Ambar Narayan, and Sudhir Shetty served as peer
reviewers. Robert Zimmermann edited the document, and Susan Graham was the pro-
duction editor. The reports publishing was supervised by Patricia Katayama. Venkat Gopal-
akrishnan, Phil Hay, Mary D. Lewis, and Mikael Ello Reventar contributed to dissemination.
Additional support was provided by Anna Regina Rillo Boneld, Pamela Gaye C. Gunio,
Estella Malayika, Nelly Obias, and Clara Serraino.
The team would like to thank Franois Bourguignon, Branko Milanovic, and Matthew
Wai-Poi for sharing data. The team would also like to acknowledge the following peo-
ple for insightful discussions, including Omar Arias, Joo Pedro Azevedo, Benu Bidani,
Andrs Castaeda, Luc Christiansen, Andrew Dabalen, Klaus Deininger, Dung Doan, Martin
C. Evans, Deon Filmer, Alan Fuchs, Emanuela Galasso, Xavier Gine, Stephane Hallegatte,
Ruth Hill, Leora Klapper, Jose R. Lopez-Calix, Carolina Mejia-Mantilla, Rinku Murgai, Luis F.
Lpez-Calva, Minh Cong Nguyen, Pedro Olinto, Maria Beatriz Orlando, Carlos Rodrguez-
Casteln, Halsey Rogers, Julie Rozenberg, Carlos Silva-Jauregui, Emmanuel Skouas, Pablo
Surez-Becerra, Hiroki Uematsu, Adam Wagstaff, and Yukata Yoshino. Comments to pre-
vious versions of the report were provided by Pedro Alba, Maurizio Bussolo, Jose Familiar
Calderon, Anna Chytla, Amit Dar, Augusto de la Torre, Shanta Devarajan, Marianne Fay, Erik
Feyen, Norbert Fiess, Lisa Finneran, Haisan Fu, Ejaz Ghani, Aart Kraay, Cyril Muller, Mamta
Murthi, Alberto Ninio, Martin Rama, Sheila Redzepi, Jose G. Reis, Joanna Silva, Philip
Schellekens, Richard Scobey, Radwan Shaban, Nikola Spatafora, Hans Timmer, Yvonne
Tsikata, Laura Tuck, Jos Verbeek, and Xiaoqing Yu.
The report beneted from substantial support from the German Development Institute/
Deutsches Institut fr Entwicklungspolitik (DIE).
xi
About the Core Team
and the Contributors
Mario Negre, co-director of the report, is a senior economist in the World Bank Develop-
ment Economics Research Group, where he is seconded by the German Development
Institute. He is a nonresidential research fellow at Maastricht School of Management. He
has worked at the European Parliament, rst as an adviser to the chairman of the Develop-
ment Committee and then for all external relations committees. Since 2012, he has been a
senior researcher at the German Development Institute. His elds of specialization are pro-
poor growth, inclusiveness, inequality, and poverty measurement, as well as development
cooperation policy, particularly in Europe. Mario holds a BSc in physics from the University
of Barcelona, an MA in development policies from the University of Bremen, and a PhD in
development economics from the Jawaharlal Nehru University, India.
Soumya Chattopadhyay is a research fellow in the Growth, Poverty, and Inequality Pro-
gramme at the Overseas Development Institute. His research interests include assessing
the impact on subjective well-being of macro conditions and policy interventions using
household surveys, identifying the vulnerable and the marginalized, and the issues revolving
around infrastructure investment and service delivery. Previously, he worked at the World
Bank. He was a senior research associate in the Global Economy and Development Pro-
gram at the Brookings Institution, and taught at the School of Public Policy at the University
of Maryland. Soumya holds a BA in economics from the University of Delhi and the Univer-
sity of Cambridge, a masters in public management, and a PhD in international economic
policy from the University of Maryland.
xiii
Shaohua Chen is a lead statistician in the Development Economics Research Group of the
World Bank. Her main research interests over the past 20 years have been on poverty and
inequality measurement. She has managed the global poverty monitoring and online com-
putational tool PovcalNet at the World Bank since 1991. She is also responsible for the mea-
surement and projection of global poverty for the major reports of the World Bank, such as
World Development Indicators and the Global Monitoring Report. Before joining the World
Bank, Shaohua was a lecturer at Huazhong University of Science and Technology. Her re-
search ndings have been published in major economic and statistical journals, including
the Journal of Development Economics, the Journal of Public Economics, The Quarterly
Journal of Economics, and The Review of Economics and Statistics. She received her MSc
in statistical computing from the American University.
Mara Eugenia Genoni is a senior economist at the Poverty and Equity Global Practice at
the World Bank. Her elds of specialization are survey design, poverty and inequality, migra-
tion, and risk management. At the World Bank, she has led the poverty and equity programs
in Bolivia and Peru. She has also contributed to the poverty work in Argentina and Central
America and to the Regional Gender Impact Evaluation Initiative. Before joining the World
Bank, Mara worked in the research department at the Inter-American Development Bank
and the Ministry of Finance of the Province of Buenos Aires in Argentina. She holds a PhD
in economics from Duke University.
Christoph Lakner is an economist in the Development Research Group at the World Bank
(Poverty and Inequality Team). He previously worked in the World Banks Poverty Practice
on Poverty and Inequality issues in Argentina. His research interests include inequality, pov-
erty, and labor markets in developing countries. In particular, he has been working on global
inequality, the relationship between inequality of opportunity and growth, the implications
of regional price differences for inequality, and the income composition of top incomes. He
holds a BA, MPhil, and DPhil in economics from the University of Oxford.
Maura K. Leary is the communications lead for the World Bank Groups Poverty and Equity
Global Practice, where she manages strategic communications and outreach on poverty
reduction, equity, shared prosperity, and inequality. From 2011 to 2013, she was the part-
nerships and communications specialist on the Gender and Development team. Prior to
joining the World Bank in 2011, she worked at George Washington University and Tufts
University, managing academic programs in France and the United States for high school,
university, graduate, and adult students. She holds a BA in French from Connecticut College
and a masters degree in international affairs from the Elliott School of International Affairs
at the George Washington University.
Jos Montes is a data scientist in the Poverty and Equity Global Practice of the World Bank.
He has been working for more than 10 years in poverty and inequality measurement and
helping national statistics ofces improve the quality, consistency, and documentation of
their household surveys. Since 2013, he has been part of Europe and Central Asia Team
Statistics Development, and since 2016, part of the core team of the Global Team Statistics
Development. Prior to the World Bank, he worked at the Inter-American Development Bank
as a household survey specialist in the Poverty and Advisory Unit. He was also a lecturer at
the Universidad del Pacco. Jos holds a BA in economics from the Universidad del Pacf-
ico and an MSc in economics and an MSc in statistics from Texas A&M University.
Espen Beer Prydz is an economist in the World Banks Development Economics Research
Group. His research interests include issues of poverty, inequality, and survey methods.
He has worked in Cambodia, Indonesia, and South Sudan on poverty, social protection, and
economic policy. Prior to joining the World Bank, Espen undertook research on poverty,
Ani Silwal is a consultant in the World Banks Development Economics Research Group.
He holds a BA from Swarthmore College, an MSc from the University of Maryland, and
a PhD in economics from the University of Sussex. He has also worked on international
migration and remittances. His research interest is the constraints that households face in
escaping poverty.
The Contributors
Timm Bnke is assistant professor of public economics at the School of Business and
Economics at Freie Universitt Berlin. His research interests revolve mainly around inequal-
ity and the distribution of income and wealth, the inclusiveness of growth, the design and
incentives of state welfare institutions, and redistribution and insurance through tax-benet
systems. Since 2015, he has been associate editor of the Journal of Income Distribution
and scientic board member of the Research Institute Economics of Inequality at Vienna
University of Economics and Business. In addition, he is a regular reviewer for scientic
foundations and acts as a scientic and political consultant. Timm holds a masters and a
PhD in economics from Freie Universitt Berlin.
Will Durbin studied ethics, politics, and economics as an undergraduate at Yale University
and international development for a masters degree at the Woodrow Wilson School of
Public and International Affairs, Princeton University. He previously worked on climate
change and environmental policy and currently focuses on poverty reduction.
Aparajita Goyal is a senior economist in the Poverty and Equity Global Practice of the
World Bank. Her work focuses on microeconomic issues of development, with an empha-
sis on technological innovation in agriculture, access to markets, and intellectual property
rights. Her research has been published in leading academic journals, such as American
Economic Review, Journal of Human Resources, and Journal of Development Economics,
and has been featured in the popular press, including Frontline, Economist, and Wall Street
Journal. Within the World Bank, she has previously worked in the Development Economics
Research Group, Ofce of the Chief Economist for the Latin America and Caribbean Region,
and Agriculture Global Practice after joining the Young Professionals Program. She holds a
BA in economics from St. Stephens College, University of Delhi, India, an MSc from the
London School of Economics, and a PhD in economics from the University of Maryland.
David Newhouse is a senior economist in the Poverty and Equity Global Practice. He cur-
rently leads the Banks engagement on poverty in Sri Lanka, as well as on projects that
aim to understand the nature of global poverty and incorporate satellite imagery into pov-
erty measurement. He was formerly a labor economist in the Social Protection and Labor
Practice, where he helped lead efforts to analyze labor markets and the policy response in
the wake of the 2008 nancial crisis. He rst joined the Bank in August 2007 and co-led
the Indonesian Jobs Report. Previously, he worked in the Fiscal Affairs Department of the
International Monetary Fund providing policy advice on energy and food subsidies. David
holds a PhD in economics from Cornell University. He has co-authored a book and several
journal articles on a wide range of issues relating to labor, health, and education in develop-
ing countries.
Stace Nicholson is a senior program ofcer for international economic and nancial affairs
at the Japan International Cooperation Agencys U.S. ofce. In this position, he conducts
and oversees research that supports credit risk assessment of the agencys concessional
loan portfolio and serves as the agencys junior liaison with multilateral nancial institutions
based in Washington. His work includes tracking macroeconomic developments across a
range of emerging and frontier, or developing economies, facilitating research partnerships
and project co-nancing on an ad hoc basis, and reporting on development nance trends.
Prior to joining the agency, Stace interned with the Ghana Center for Democratic Devel-
opment and undertook eld research in Uganda as a micronance client assessment fel-
low for the Foundation for International Community Assistance. He is a summa cum laude
graduate (political science) of Manchester College and holds a masters degree in global
nance, trade, and economic integration from the Josef Korbel School for International
Studies, University of Denver.
Note: All dollar amounts are U.S. dollars (US$) unless otherwise indicated.
For a list of the 3-letter country codes used by the World Bank, please go to:
https://datahelpdesk.worldbank.org/knowledgebase/articles/906519-world-bank-country
-and-lending-groups.
xvii
Overview
OVERVIEW 1
FIGURE O.1 Distribution of the Extreme Poor, the Nonpoor, the Bottom 40, and the Top 60,
2013
100
90
80
70
National percentile 60
50
40
30
20
10
0
0 1,000 2,000 3,000 4,000 5,000 6,000 7,000
Cumulative global polulation
Top 60, nonpoor Bottom 40, nonpoor
Top 60, poor Bottom 40, poor
Source: Inspired by Beegle et al. 2014 and updated with 2013 data.
Note: The gure has been constructed from vertical bars representing countries sorted in descending order by extreme poverty
headcount ratio (from left to right). The width of each bar reects the size of the national population. The gure thus illustrates the
situation across the total global population.
focal theme. This year, the focal theme is These substantive considerations highlight
inequality. the importance of directing attention to the
problem of inequality.
Inequality matters for There are other reasons too. Sustaining
the rapid progress in reducing poverty and
achieving the goals,
boosting shared prosperity that has been
but also for other reasons achieved over the last 25 years is at risk be-
Despite decades of substantial progress in cause of the struggles across economies to
boosting prosperity and reducing poverty, recover from the global nancial crisis that
the world continues to suffer from substan- started in 2008 and the subsequent slow-
tial inequalities. For example, the poorest down in global growth. The goal of elimi-
children are four times less likely than the nating extreme poverty by 2030which is
richest children to be enrolled in primary ed- likely to become more difcult as we ap-
ucation across developing countries. Among proach more closely to itmight not be
the estimated 780 million illiterate adults achieved without accelerated economic
worldwide, nearly two-thirds are women. growth or reductions in within-country
Poor people face higher risks of malnutri- inequalities, especially among those coun-
tion and death in childhood and lower odds tries with large concentrations of the poor.
of receiving key health care interventions.1 Generally speaking, poverty can be reduced
Such inequalities are associated with through higher average growth, a narrow-
high nancial cost, affect economic growth, ing in inequality, or a combination of the
and generate social and political burdens two.2 Achieving the same poverty reduction
and barriers. But leveling the playing eld during a slowdown in growth therefore re-
is also an issue of fairness and justice that quires a more equal income distribution. It
resonates across societies on its own merits. follows that, to reach the goals, efforts to fos-
OVERVIEW 3
TABLE O.1 World and Regional Poverty Estimates, 2013
Headcount Poverty Squared poverty Poor
Region ratio (%) gap (%) gap (%) (millions)
East Asia and Pacic 3.5 0.7 0.2 71.0
Eastern Europe and Central Asia 2.3 0.6 0.3 10.8
Latin America and the Caribbean 5.4 2.6 1.8 33.6
Middle East and North Africaa
South Asia 15.1 2.8 0.8 256.2
Sub-Saharan Africa 41.0 15.9 8.4 388.7
Total, six regions 12.6 3.8 1.8 766.6
World 10.7 3.2 1.5 766.6
Source: Latest estimates based on 2013 data using PovcalNet (online analysis tool), World Bank, Washington, DC, http://iresearch
.worldbank.org/PovcalNet/.
Note: Poverty is measured using the US$1.90-a-day 2011 purchasing power parity (PPP) poverty line. The six-region total includes all
developing regions. World includes all developing regions, plus industrialized countries. Denitions of geographical regions are those
of PovcalNet. = not available.
a. Estimates on the Middle East and North Africa are omitted because of data coverage and quality problems. The population cover-
age of available household surveys is too low; the share of the total regional population represented by the available surveys is below
40 percent. There are also issues in the application of the 2011 PPP U.S. dollar to the region. These issues revolve around the quality
of the data in several countries experiencing severe political instability, breaks in the consumer price index (CPI) series, and measure-
ment or comparability problems in specic household surveys. These caveats suggest that further methodological analyses and the
availability of new household survey data are both needed before reliable and sufciently precise estimates can be produced.
represented a noticeable decline, the pov- global extreme poverty headcount ratio
erty rate remains unacceptably high given dropped steadily over this period. Despite
the low standard of living implied by the more rapid demographic growth in poorer
$1.90-a-day threshold. areas, the forceful trend in poverty reduc-
The substantial decline is mostly ex- tion culminated with 114 million people
plained by the lower number of the ex- lifting themselves out of extreme poverty in
treme poor in two regions, East Asia and 2013 alone (in net terms).
Pacic (71 million fewer poor) and South
Asia (37 million fewer poor), that showed
cuts in the extreme poverty headcount ratio The geography of global
of 3.6 and 2.4 percentage points, respec- extreme poverty is
tively. The former is explained in large part changing as poverty
by lower estimates on China and Indonesia, declines
whereas the decrease in South Asia is driven
by Indias growth. The number of the poor As extreme poverty declines globally, the
in Sub-Saharan Africa fell by only 4 million regional poverty prole has been chang-
between 2012 and 2013, a 1.6 percentage ing. This is a direct result of uneven prog-
point drop that leaves the headcount ratio ress, mainly at the expense of Sub-Saharan
at a still high 41.0 percent. Eastern Europe Africa, which has the worlds largest head-
and Central Asias headcount ratio shrank by count ratio (41.0 percent) and houses the
about a quarter of a percentage point, down largest number of the poor (389 million),
to 2.3 percent, while, in Latin America and more than all other regions combined. This
the Caribbean, the ratio declined by 0.2 per- is a notable shift with respect to 1990, when
centage points, to 5.4 percent (gure O.2). half of the poor were living in East Asia
Both the extreme poverty headcount and Pacic, which, today, is home to only
ratio and the total number of the extreme 9.3 percent of the global poor. South Asia
poor have steadily declined worldwide since has another third of the poor, while Latin
1990 (gure O.3). The world had almost 1.1 America and the Caribbean, along with
billion fewer poor in 2013 than in 1990, a Eastern Europe and Central Asia, complete
period in which the world population grew the global count with 4.4 percent and 1.4
by almost 1.9 billion people. Overall, the percent, respectively (gure O.4).4
60
Poverty headcount ratio (%)
50
40
30
20
10
0
1990 1993 1996 1999 2002 2005 2008 2011 2013
East Asia and Pacic South Asia
Eastern Europe and Central Asia Sub-Saharan Africa
Latin America and the Caribbean World
Middle East and North Africa
Source: Latest estimates based on 2013 data using PovcalNet (online analysis tool), World Bank, Washington, DC, http://iresearch
.worldbank.org/PovcalNet/.
Note: Poverty is measured using the US$1.90-a-day 2011 PPP poverty line. Breaks in trends arise because of a lack of good-quality
data.
Who are the poor? FIGURE O.3 Trends in the Global Poverty Headcount Ratio and the
Number of the Global Poor, 19902013
Exploring the characteristics of the poor is
key to a better understanding of the circum- 60
1,850 1,855
2,000
stances and contexts surrounding poverty. 1,800
1,666 1,693
A large database of household surveys in 50 1,588
89 developing countries provides insights 1,600
Poverty headcount ratio (%)
20 0
20 1
20 2
13
9
1
1
1
19
19
19
19
20
20
20
20
OVERVIEW 5
FIGURE O.4 Where Are the Global Poor than among urban dwellers: 18.2 percent
Living? The Global Poor, by Region, 2013 versus 5.5 percent, respectively. Agricultural
Share of global poor by region (%)
workers are over four times more likely than
people employed in other sectors of the
0.8% 9.3% economy to be poor. Educational attain-
1.4% ment is inversely correlated with poverty. A
4.4% small share of primary-school graduates are
living in poverty: fewer than 8.0 percent of
people who completed primary school, but
not secondary school, are living below the
50.7% US$1.90 poverty line. Among individuals
who have attended university, the share is
33.4%
less than 1.5 percent.6 Similar differences are
observed if poverty incidence is measured
relative to the US$3.10-a-day poverty line.
Age proles conrm that children are
East Asia and Pacic more likely than adults to be poor. Children
South Asia under 18 account for half the global poor in
Eastern Europe and Central Asia
2013, but less than a third of the sample pop-
Sub-Saharan Africa
ulation (32 percent) (gure O.6). Younger
Latin America and the Caribbean
Rest of the world
children (ages 014) contribute especially
heavily to the poverty headcount, much more
Source: Latest estimates based on 2013 data using PovcalNet than their share in the worlds population.
(online analysis tool), World Bank, Washington, DC, http://
iresearch.worldbank.org/PovcalNet/.
Progress in boosting shared
prosperity worldwide is
FIGURE O.5 Profile of the Poor, by Characteristics and Region, 2013 uneven
Shared prosperity is measured as the growth
in the average income or consumption of
Share of poor the bottom 40. The larger the growth rate
in rural areas in the income of the bottom 40, the more
quickly prosperity is shared with the most
disadvantaged sectors in society.
To the extent that greater economic
Share of poor adults
working in agriculture growth is associated with rising incomes
among the poor and the bottom 40, more
rapid growth will lead to greater shared
prosperity and poverty reduction. Likewise,
Share of poor
014 years old
a more rapid increase in shared prosperity
and in the narrowing of inequality typically
accelerates the decline in poverty at any
given rate of growth.
Share of poor adults Progress on this indicator is examined
with no education
in this report using the latest information
available on each country, currently circa
0 10 20 30 40 50 60 70 80 90 200813. To take into account the share
Percent of prosperity going to groups other than
East Asia and Pacic South Asia
the bottom 40, the report also monitors the
Eastern Europe and Central Asia Sub-Saharan Africa shared prosperity premium, dened as the
Latin America and the Carribean World difference between the growth in the in-
Source: Castaeda et al. 2016. come of the bottom 40 and the growth in
Note: Poverty is measured using the US$1.90-a-day 2011 PPP poverty line. income at the mean in each country. A pos-
8.6%
15.4%
44.0% 5.1%
12.9% 57.6%
6.0%
itive premium indicates that the growth in the Caribbean, the income of the bottom
the income or consumption of the bottom 40 grew by 8.0 percent in Paraguay, while
40 exceeds that of the mean, and by impli- in Honduras, income contracted by about
cation, that of the rest of the population. A 2.5 percent annually during the same spell.
higher or lower premium indicates the ex- A source of concern is the small value
tent to which distributional changes favor of the shared prosperity premium. While
the bottom 40 relative to the top 60. the average annualized growth in the in-
The bottom 40 beneted from solid eco- come or consumption of the bottom 40
nomic growth in many countries in 2008 was 2.0 percent worldwide circa 200813
13. Overall, the bottom 40 in 60 of the 83 (a population-weighted 4.6 percent), the
countries monitored experienced positive average shared prosperity premium was
income growth, representing 67 percent of only 0.5 percentage points during the same
the worlds population and 89 percent of the period (a population-weighted 0.4 percent-
population represented by the surveys (g- age point). Is this sufcient to expect large
ure O.7). A total of 49 countries reported a reductions in inequality and poverty so as
positive shared prosperity premium: income to achieve the World Bank goals by 2030?
growth among the bottom 40 exceeded that
of the mean (and therefore, that of the top A more rapid decline in
60). However, there is no room for compla-
inequality is needed to
cency: in 23 countries, the incomes of the
bottom 40 declined during the period. end poverty
There are wide regional differences in Figure O.8 makes it clear that the goal of
shared prosperity and the shared prosperity ending poverty by 2030 cannot be reached
premium. The best performers were in East at current levels of economic growth. It
Asia and Pacic and in Latin America and shows the trajectory of the global poverty
the Caribbean, while high-income indus- headcount ratio under various assumptions
trialized countries performed the least well. about distributional changes and under the
Greece, a high-income country, experienced assumption that every country will grow at
an annualized contraction of 10.0 percent its rate of the last 10 years. These changes
in the income of the bottom 40, while the are modeled by means of alternative shared
Democratic Republic of Congo recorded prosperity premiums in each country.
a rise of 9.6 percent. In Latin America and Thus, in the scenario of a premium labeled
OVERVIEW 7
FIGURE O.7 Shared Prosperity, 83 Countries, 200813
10 5 0 5 10
Annualized growth in mean income or consumption (%)
Total population Bottom 40
Source: GDSP (Global Database of Shared Prosperity), World Bank, Washington, DC, http://www.worldbank.org/en/topic/poverty
/brief/global-database-of-shared-prosperity.
Note: The data show the annualized growth in mean household per capita income or consumption according to surveys.
FIGURE O.8 Boosting Shared Prosperity erty goal by 2030. However, it illustrates that
and Ending Poverty, 10-Year Scenario, under current average growth rates, reduc-
201330 tions in inequality will be key to reaching
30 the poverty goal by 2030. This is so under
specic assumptions about how economic
growth will occur until 2030. If the poverty
25 goal is to be accomplished by 2030, the in-
come distribution must improve, especially
Poverty headcount ratio (%)
OVERVIEW 9
FIGURE O.10 Global Inequality, 19882013 This unprecedented drop in global inequal-
80
1.0 ity was driven by a convergence in average
incomes across countries that was spurred by
70
rising incomes in populous countries such
0.8 as China and India. As a result, between-
country inequality declined. In contrast,
Mean log deviation
Gini index
0.6
65 ponent of global inequality, took on a
greater role in global inequality (explaining
0.4 50 a third of the total variation) (gure O.10).
OVERVIEW 11
FIGURE O.13 The National Income Share of the Richest 1 Percent, Selected Economies
a. Industralized economies since 1900 b. Developing economies since 1980
20 20
10 10
5 5
1900 1925 1950 1975 2000 2015 1980 1990 2000 2010 2013
United States Japan France South Africa Argentina India
Korea, Rep. Taiwan, China
Source: Calculations based on data of WID (World Wealth and Income Database), Paris School of Economics, Paris, http://www
.parisschoolofeconomics.eu/en/research/the-world-wealth-income-database/.
Note: The income share excludes capital gains. These measures are typically derived from tax record data. For South Africa, the
income share refers to adults.
analyzed are Brazil, Cambodia, Mali, Peru, also play a role in reducing inequalities. For
and Tanzania. These are among the best per- example, the minimum wage and safety nets
formers, showing good shared prosperity have been crucial in allowing Brazil to lessen
premiums and strong records in narrowing inequality, while diversication from agri-
income inequality and reducing extreme culture into light manufacturing and ser-
poverty. They are also sufciently diverse vices in Cambodia opened job opportunities
to embody different development strategies to the poor.
and historical circumstances. Overall, these country cases also high-
The ve countries exercised judicious light that success in reducing inequality
macroeconomic management, appropriately and boosting shared prosperity in a given
dealt with external shocks, and implemented period does not necessarily translate into
more or less protracted and coherent eco- similar success on other economic, social,
nomic and social sector reforms. They also or political fronts, nor into sustainable re-
beneted from favorable external conditions ductions in inequality over time. Indeed,
in the form of cheap and abundant interna- conict emerged in Mali after the period
tional credit, high commodity prices, and of inequality reduction, in large part be-
booming trade. Decision making and the cause of protracted aws in governance.8
context allowed rapid, sustainable, and in- The marked differences in the most recent
clusive growth. The countries also highlight policy choices between Brazil and Peru on
the importance of labor markets in trans- scal consolidation and the control of ina-
lating economic growth into inequality re- tion largely explain the stark differences in
duction by increasing job opportunities and their most recent growth patterns: gradual
earnings, reintegrating individuals who have recovery in Peru, recession in Brazil. Mean-
been excluded from economic opportuni- while, long-standing barriers constraining
ties, and narrowing gaps across workers be- productivity and investments in agriculture
cause of gender, residence, or sector of em- in Cambodia and an unnished transition
ployment. Notwithstanding these common to a market-based economy in Tanzania call
factors, country-specic choices and eco- into question the sustainability of inequal-
nomic developmentsdeliberate or not ity reduction in these two countries.9
OVERVIEW 13
labor income of the poor by raising both mal workers, high labor force participation
farm production and off-farm labor income rates, and low unemployment.
through greater demand for wage labor by Challenges remain. Analysts question
commercial cereal producers. In the latter the quality of public spending, notably in
half of the rst decade of the 2000s, while education. Despite signicant gains in en-
manufacturing was contracting, agricul- rollments, Peru lags comparator countries
tural production, favored by good weather in international assessments of education
conditions, boomed, resulting in reduced quality outcomes, such as student test scores.
inequality.14 Since 2012, however, the con- This is a serious consideration because the
ict in the north has put the brakes on the favorable external conditions that have
progress of the previous decade. The crisis underpinned Perus growth have recently
has disrupted education and health care begun to recede. Maintaining the impressive
services in the north, and displaced popula- gains in a much less favorable environment
tions are exerting pressure on service deliv- will require policy reforms that address the
ery in the south. This resurgence of conict limited productivity resulting from the low
comes after two decades of relative stabil- quality of human capital and the high rates
ity, including multiparty elections, and is of informality.
associated with a long-term deterioration
in governance, the expanding presence of
Tanzania, 200414: sharing
political pay-offs and co-optation, and an
prosperity amid diversication
army with limited capacity to face increas-
ing security threats.15 Tanzania maintained robust and stable
economic growth between 2004 and 2014,
Peru, 200414: equalizing averaging 6.5 percent a year. The national
poverty headcount ratio fell from 34.4 per-
growth through capital
cent in 2007 to 28.2 percent in 2012. The
investment
Gini index declined from around 39 to 36
The improvement in living conditions over the same period. Annual consumption
among the poor and the bottom 40 in Peru growth among the bottom 40, at 3.4 per-
has been remarkable. The Gini index fell cent, was more than three times the growth
from 51 in 2004 to 44 in 2014, and poverty among the top 60, at 1.0 percent.
rates dropped from 12 percent in 2004 to 3 Since the early 2000s, the countrys eco-
percent in 2014. The outstanding growth of nomic expansion has been driven primarily
the economy (6.6 percent annually during by rapidly growing sectors, especially com-
the period) in a context of macroeconomic munications, nancial services, and con-
stability, favorable external conditions, and struction. However, the growth in these sec-
important structural reforms was respon- tors has not been translated into substantive
sible for this progress. In the early 2000s, improvements in the living conditions of
prudent macroeconomic policies and high the poor, the less well educated, or rural
commodity prices attracted foreign direct residents. After 2007, there was a surge in
investment into the economy, particularly retail trade and manufacturing, particularly
in the mining sector. Capital accumulation agroprocessing in products such as food,
became the main driver of growth, account- beverages, and tobacco, which has allowed
ing for more than two-thirds of total growth the inclusion of less highly skilled workers
after 2001. The labor market was the main in the economy.17 Among policies explicitly
pathway for the translation of the countrys aimed at rendering the income distribution
impressive growth into less inequality and more equitable, the Tanzania Social Action
poverty, explaining about 80 percent of the Fund stands out. It encompasses a CCT
reduction in the Gini and three-quarters of program, public works, and a community
the reduction in extreme poverty during the savings component that is expected to en-
last decade.16 Critical to this success were a able the poorest segments of the popula-
closing wage gap between formal and infor- tion to increase their savings and their in-
OVERVIEW 15
whether this effect is intended or unin- cent of the population, including 18 million
tended. The impacts can be large or small, previously uninsured people.21
short term or lifelong, and they may narrow Recent assessments in developed and de-
disparities in income, well-being, or oppor- veloping countries highlight the important
tunity. For example, taxes can have direct consequences of successful experiences in
and deliberate redistributive effects, reach- improving the quality of teaching. For ex-
ing up to 20 points of the Gini index of ample, estimates in the United States indi-
market incomes in some European Union cate that pupils taught by teachers who are
(EU) economies.19 In contrast, investments at the 90th percentile in effectiveness are
in rural roads and electrication inuence able to learn 1.5 years worth of material in
income generation opportunities, employ- a single academic year, while pupils taught
ment, and even perceptions of gender roles. by teachers at the 10th percentile learn only
Expanding ECD, health care coverage, and a half-years worth of material.22 Increased
good-quality education often reduces cog- schooling has been linked to more produc-
nitive, nutritional, and health status gaps, tive nonfarm activities in China, Ghana,
thereby narrowing inequalities in human and Pakistan.23
capital development and future income In Bangladesh, the Shombob Pilot Pro-
opportunities. By smoothing consumption gram reduced the incidence of wasting
among the most deprived, especially during among 10- to 22-month-old infants by 40
shocks, CCTs help prevent the widening of percent.24 Mexicos Prospera Program has
inequality. helped lower infant mortality and maternal
Evidence of the benets of such interven- mortality by as much as 11 percent.25 The
tions is encouraging. For example, in 1986, Nahouri Pilot Project in Burkina Faso is
a Jamaican intervention sought to support credited with raising primary and secondary
toddlers ages 924 months who suffered enrollment rates by 22 percent among boys.26
from stunting.20 The intervention consisted In Pakistan, CCTs made available only in
of weekly visits to the households of the tod- favor of girls led to increases in enrollment in
dlers by community health workers to teach the range of 1113 percentage points.27
parenting skills aimed at fostering cognitive Also in Bangladesh, the Rural Develop-
and socioemotional development among ment Program and the Rural Roads and
the children. It also provided nutrition Markets Improvement and Maintenance
supplements and psychosocial stimulation. Program have boosted employment and
Researchers followed up among the partic- wages in agricultural and nonagricultural
ipants 20 years after the intervention and activities, as well as aggregate harvest out-
found that the groups of children receiving puts. Per capita annual spending across
stimulation (with or without the nutrition households in the program areas has risen
supplements) had, as adults, 25 percent by about 10 percent.28 In rural Vietnam,
higher earnings than the control group. The school enrollment rates among children in
greater earnings had allowed individuals households on the electricity grid were 9.0
in the stimulation program to enjoy liveli- percentage points higher among girls and
hoods at a similar level as the members of 6.3 percentage points higher among boys
a nonstunted comparison group, effectively relative to children in households not on
eliminating the inequality in incomes be- the grid. Electrication was also associated
tween the groups. with almost an extra year in the average
Thailands Universal Coverage Scheme years of schooling among girls and an extra
enhances equity by bringing a large unin- 0.13 year among boys.29 Similarly, access in
sured population under the umbrella of a rural areas to telenovelas (television soap
national insurance program, thereby greatly operas) resulted in lower fertility rates in
reducing catastrophic health care payments Brazil, which may be related to the empow-
and improving access to essential health erment of women through the imitation of
services among the poor. Within a year of role models of emancipated women and the
its launch, the scheme was covering 75 per- representation of smaller families.30
OVERVIEW 17
Equalizing interventions are not a luxury keep electrication campaigns nancially
reserved for middle- and high-income coun- feasible, but this often means the poorest
tries, nor an option only available during households must opt out.35 Policy design
periods of prosperity. There are numerous needs to take such outcomes into account
instances of the implementation of suc- up front and explicitly.
cessful interventions in ECD, universal More knowledge! Despite the growing
health care coverage, CCTs, investment in evidence on the impacts of policy interven-
rural infrastructure, and redistributive tax tions, improving the evidence base on ini-
schemes across low-income countries. This tiatives that successfully narrow inequality
evidence should dispel the notion that only requires more investment in lling data gaps
middle- and high-income countries can and enhancing the understanding of the spe-
afford equalizing policies. Of course, con- cic pathwayswhether intended or unin-
text always matters: weak capacity, lack of tendedthrough which programs affect in-
political will, restricted scal space, vulner- equality. For example, rigorous evaluations
ability to external crises or climate change, have played a critical role in ne-tuning the
internal conict, and challenging geography design of CCTs and advocating for CCT
are among the obstacles to the reduction of desirability. Monitoring ECD programs for
inequality worldwide. These obstacles are decades has made the quantication of the
not insurmountable, however. This is also long-term effects of such programs pos-
the case during periods of crisis. Examples sible. Yet, the road ahead is still long and
of CCTs integrated in safety nets that effec- steep. Especially important is the long-term
tively protect the most vulnerable against generation of more microeconomic house-
natural disasters demonstrate that a crisis is hold data, more compelling evidence on
not an excuse for inaction, but an incentive the benets of the integration of multiple
for the adoption of equalizing interventions. interventions, and more information on the
The poor must be able to participate in potential distributional effects of policy in-
and benet from interventions: good policy terventions aimed at addressing long-term
choices benet the poorest. Evidence on ECD challenges such as climate change.36
programs, initiatives to promote univer- Data need to allow for more compre-
sal health care coverage, and efforts to fos- hensive monitoring of specic changes in
ter good-quality teaching proves that the inequality, but also in poverty and shared
most underprivileged children often bene- prosperity. Substantial efforts are required
t the most.34 Yet, this outcome should not to address the poor quality, comparability,
be taken for granted. Thus, the more well and availability of data, especially in low-
off households among the targeted pop- income countries. Figure O.14 shows the
ulation, that is, households with children availability of poverty estimates by country
with higher baseline levels of development and region. The availability is particularly
and more well educated mothers, are typ- limited in Sub-Saharan Africa and in the
ically more likely to send their children to Middle East and North Africa. This report
preschool or to take part in parenting pro- makes a strong case for expanding the avail-
grams. Many rural electrication initiatives ability of and access to data on inequality,
are associated with high connection costs to poverty, and shared prosperity.
60 11 10
7 9 8 5
9 7 2
6 3 3 8 2
3 2 1
Number of poverty estimates
50 3 3 2
2 7 4 4 2 4 2
2 3 1
6 2 1
1 17
40 16 17 14
2 8 4 18 16
2 16 17 17 15
1 1 15
4 16
5 3
30 1
7 9 1 17
4 17 13
1 3 3 15
1 1 13 1 15
20 8 25 25 25 26
9 21 23 24
14 25 25 26
2 1 13 14 23 25
3 6 13
10 1 9 16 16
11 12 13
8 6 11
8 3 6 5 1
8 7 6 7 7 8 8 6 3
3 1 4 2 3 2 4 3 3 3 3 2 3 4 4 4 3 2
0
09
10
11
12
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
13
14
15
20
20
20
20
20
20
19
19
19
19
19
19
19
19
19
19
20
20
20
20
20
20
20
20
20
20
East Asia and Pacic Eastern Europe and Central Asia Latin America and the Caribbean
Middle East and North Africa South Asia Sub-Saharan Africa
Source: Poverty and Equity Data (database), World Bank, Washington, DC, http://povertydata.worldbank.org/poverty/home/.
Note: The presentation follows the denition of the developing world of Serajuddin et al. (2015), which includes 150 countries and territories in the early 1990s and 155 in
2013. High-income countries such as the original members of the Organisation for Economic Co-operation and Development (OECD), where extreme poverty is assumed to be
zero, are not considered in this sample.
OVERVIEW 19
9. In Cambodia, these difculties revolve 2014. Challenges to Promoting Social In-
around problems in land tenure, bottlenecks clusion of the Extreme Poor: Evidence from
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and, among farmers, the lack of savings and Studies, London.
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the unnished transition to a market-based India. Working paper, Indian School of
economy translates into a private sector Business, Hyderabad, India.
characterized by a lack of competition, an Akresh, Richard, Damien de Walque, Harounan
absence of growth, and a heavy regulatory Kazianga. 2013. Cash Transfers and Child
burden associated with the public sector. Schooling: Evidence from a Randomized
See World Bank (2014, 2016a). Evaluation of the Role of Conditionality.
10. World Bank (2016b). Policy Research Working Paper 6340, World
11. Barros et al. (2010); Osorio and Souza (2012). Bank, Washington, DC.
12. ADB (2014). Araujo, Mara Caridad, Pedro Carneiro, Yyann
13. World Bank (2009, 2014). Cruz-Aguayo, and Norbert Schady. 2016.
14. Josz (2013). Teacher Quality and Learning Outcomes in
15. World Bank (2015a). Kindergarten. Quarterly Journal of Econom-
16. Genoni and Salazar (2015). ics 125 (1): 175214.
17. World Bank (2015b). Asher, Sam, and Paul Novosad. 2016. Market Ac-
18. World Bank (2016c). cess and Structural Transformation: Evidence
19. Avram, Levy, and Sunderland (2014); De
from Rural Roads in India. Working paper
Agostini, Paulus, and Tasseva (2015).
(April 20), University of Oxford, Oxford.
20. Gertler et al. (2014); Grantham-McGregor
Avram, Silvia, Horacio Levy, and Holly Suther-
et al. (1991).
land. 2014. Income Redistribution in the
21. UNICEF (2016).
European Union. IZA Journal of European
22. Araujo et al. (2016).
Labor Studies 3 (22): 129.
23. Fafchamps and Quisumbing (1999); Jolliffe
Barros, Ricardo Paes de, Mirela De Carvalho,
(1998); Yang (1997).
Samuel Franco, and Rosane Mendona. 2010.
24. Ferr and Sharif (2014).
Markets, the State, and the Dynamics of
25. Behrman and Hoddinott (2005); Gertler
Inequality in Brazil. In Declining Inequality
(2004).
in Latin America: A Decade of Progress?, ed-
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30. La Ferrara, Chong, and Duryea (2012).
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34. See the evidence presented in chapter 6. Sobrado, Hiroki Uematsu, and Yeon Soo
35. See the evidence presented in chapter 6. Kim. 2014. Ending Extreme Poverty and
36. Hallegate et al. (2016). Promoting Shared Prosperity: Could There
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The global poverty headcount requires such as the frequent case of households
that the number of the poor within a that declare zero income on a survey,
country be measured by adding up the but exhibit a consumption level that
poor based on a welfare aggregate is not zero. This may occur because
obtained through household surveys. the households lack income during a
In most countries, the aggregate of survey recall period, are dissaving, or are
choice is per capita consumption. experiencing a spell of unemployment,
Indeed, 75 percent of the countries in or because the consumption of home-
the World Bank PovcalNet database produced goods has not been correctly
the ofcial online repository of World measured.
Bank poverty datause this aggregate.a In contrast, consumption does not
The countries in the database that normally vary as widely; it displays
use incomes are mostly high-income a much smoother behavior. For this
countries and Latin America and reason, consumption tends to be the
Caribbean countries. preferred aggregate in measuring
Are these two aggregatesincome poverty in developing economies, which
and consumptionthe same? They typically depend more on agriculture and
are not. Conceptually, income is a have a larger informal sector.
measure of the potential set of all Despite these differences, both
goods and services that an individual aggregates are used indistinctively in the
or a household could obtain based on measurement of the World Bank goals
their purchasing power. Meanwhile, to maximize the number of countries
consumption represents a direct monitored. Although this creates issues
measure of the goods and services that of comparability in the measurement
the individual or household has actually of poverty, it allows the coverage of
obtained. Therefore, consumption does the global goals to be expanded. The
not capture opportunities, but realized distinction may be more problematic,
outcomes that directly determine an however, in the analysis of inequality.
individual or households well-being. This is a result of the fact that the
In practice, income is generally more coverage of household surveys is
volatile in the sense that it may be generally incomplete among top earners,
inuenced greatly by seasonal factors entrepreneurial and capital incomes are
or by a lack of regularity, particularly in inadequately reported, and measures of
agriculture and in the informal sector. It consumption often underestimate the
also has other important shortcomings, living conditions of the rich.
prosperity indicator that fails to capture in- matter the circumstances, the country con-
equality and an equity indicator that fails to text, or the time period.9
capture growth. By focusing on the growth
in incomes of the bottom 40, the shared Linking shared prosperity and
prosperity indicator incorporates a measure inequality: the shared prosperity
of prosperity and distributional dimensions. premium
Furthermore, by choosing this indicator to Tracking the growth rate of the average in-
measure one of its goals, the World Bank fo- come of the poorest two-fths of the pop-
cuses squarely on improving the welfare of ulation is crucial for assessing the inclusive
the least well off within every country across nature of growth. However, taking this mea-
the world, ensuring that everyone is part of sure a step further and comparing it to the
a dynamic and inclusive growth process, no performance of the mean provides import-
60 11 10
7 9 8 5
9 7 2
6 3 3 8 2
3 2 1
Number of poverty estimates
50 3 3 2
2 7 4 4 2 4 2
2 3 1
6 2 1
1 17
40 16 17 14
2 8 4 18 16
2 16 17 17 15
1 1 15
4 16
5 3
30 1
7 9 1 17
4 17 13
1 3 3 15
1 1 13 1 15
20 8 25 25 25 26
9 21 23 24
14 25 25 26
2 1 13 14 23 25
3 6 13
10 1 9 16 16
11 12 13
8 6 11
8 3 6 5 1
8 7 6 7 7 8 8 6 3
3 1 4 2 3 2 4 3 3 3 3 2 3 4 4 4 3 2
0
11
12
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
13
14
15
20
20
20
20
20
20
20
19
19
19
19
19
19
19
19
19
19
20
20
20
20
20
20
20
20
20
East Asia and Pacic Eastern Europe and Central Asia Latin America and the Caribbean
Middle East and North Africa South Asia Sub-Saharan Africa
Source: Poverty and Equity Data (database), World Bank, Washington, DC, http://povertydata.worldbank.org/poverty/home/.
Note: The presentation follows the denition of the developing world employed by Serajuddin et al. (2015), which includes 150 countries and territories in the early 1990s and
155 in 2013. High-income countries such as the original members of the Organisation for Economic Co-operation and Development (OECD), where extreme poverty is assumed
to be zero, are not considered in this sample.
FIGURE 1.2 Availability of Poverty Data, by All Possible 10-Year Periods, 19902013
160
140
120 63 62 62 66 68 67
75 76 81 80 82 81 84 84 81
Number of countries
100
80
37 42 47
60 44 45 51
46 52 49 50 48 51 49 50 53
40
50 46
20 42 41 38 33 30 25 23 24 24 22 22 21 21
0
9
09
10
3
0
8
9
00
00
00
00
00
00
00
00
00
1
0
1
2
2
90
02
03
04
0
0
19
91
92
93
94
95
96
97
98
99
20
20
20
20
20
19
19
19
19
19
19
19
19
19
Deprived (0 data points) Deprived (1 or 2 data points, more than 5 years apart) Non-deprived
Source: Poverty and Equity Data (database), World Bank, Washington, DC, http://povertydata.worldbank.org/poverty/home/.
Chapter 2 presents the latest data on global and regional poverty using the international
extreme poverty line of US$1.90 (2011 purchasing power parity [PPP] U.S. dollars). The
chapter discusses the geographical concentration of poverty and complements the global
headcount ratio and data by providing a prole of global poverty. It also reects on recent
methodological changes and their consequences on global estimates.
The global poverty estimate for 2013 is 10.7 percent of the worlds population, or 767
million people. This conrms the continuation of the rapid downward trend in the poverty
headcount ratio since 1990 (an average of 1.1 percentage points per year). The reduc-
tion in 2013 is even greater than the average, with a decline in the headcount ratio of 1.7
percentage points. In absolute net terms, this represents 114 million fewer poor people in
a single year. Much of the observed reduction was driven by remarkable progress in the
East Asia and Pacic region (71 million fewer poor) and South Asia (37 million fewer poor).
A signicant change in the geography of poverty has meant that Sub-Saharan Africa was
hosting more than half the worlds poor in 2013. This is despite the fact that the African
subcontinent experienced progress in lowering both the headcount ratio (1.6 percentage
points) and the number of the poor (4 million in 201213). However, these achievements are
modest compared with reductions in East Asia and Pacic and in South Asia. Other regions
with lower poverty rates and totalsnotably, Eastern Europe and Central Asia, as well as
Latin America and the Caribbeansaw marginal declines in 201213. The prole of the
global poor shows they are predominantly rural, young, poorly educated, mostly employed in
the agricultural sector, and living in larger households with more children.
GLOBAL POVERTY 35
TABLE 2.1 World and Regional Poverty Estimates, 2013
Headcount Poverty Squared poverty Poor
Region ratio (%) gap (%) gap (%)a (millions)
East Asia and Pacic 3.5 0.7 0.2 71.0
Eastern Europe and Central Asia 2.3 0.6 0.3 10.8
Latin America and the Caribbean 5.4 2.6 1.8 33.6
Middle East and North Africab
South Asia 15.1 2.8 0.8 256.2
Sub-Saharan Africa 41.0 15.9 8.4 388.7
Total, six regions 12.6 3.8 1.8 766.6
World 10.7 3.2 1.5 766.6
Sources: Annex 2A; most recent estimates, based on 2013 data using PovcalNet (online analysis tool), World Bank, Washington, DC,
http://iresearch.worldbank.org/PovcalNet/.
Note: Poverty is measured using the 2011 US$1.90-a-day PPP poverty line. The six-region total includes all developing regions.
World includes all developing regions, plus industrialized countries. Denitions of geographical regions are those of PovcalNet.
= not available.
a. The squared poverty gap attaches increasing weights to the poor the further below the poverty line they are. The higher the
squared poverty gap, the greater the share of the poor reporting extremely low consumption levels.
b. Estimates on the Middle East and North Africa are omitted because of data coverage and quality problems. The population
coverage of available household surveys is too low; the share of the total regional population represented by the available surveys
is below 40 percent. There are also issues in the application of the 2011 PPP U.S. dollar to the region. These issues revolve around
the quality of the data in several countries experiencing severe political instability, breaks in the consumer price index (CPI) series,
and measurement or comparability problems in specic household surveys. These caveats suggest that more methodological analyses
and the availability of new household survey data are both needed before reliable and sufciently precise estimates can be produced.
percent, were poor, 1.7 percentage points erty remains unacceptably high despite the
lower than the global headcount ratio in recent progress.
2012. Given the low standard of living im- The poverty gap provides a measure of
plied by the US$1.90-a-day threshold, pov- how far below the poverty line the poor
in a given country or region fall. This gap
is expressed as a share of the poverty line
FIGURE 2.1 The Global Poverty Headcount Ratio and the Number of
and represents the average distance to the
the Extreme Poor, 19902013
poverty line among all the poor. While the
60
1,850 1,855
2,000 global poverty gap is small (3.2 percent),
1,800
the poverty gap in Sub-Saharan Africa is
1,666 1,693
50 1,588 almost ve times larger (15.9 percent). This
1,600 indicates that the region not only houses the
Poverty headcount ratio (%)
1,328 1,400
40 1,206 the world, but also that the regions poor are,
35.0% 33.5% 1,200
1,078 on average, living much further below the
28.8% 28.1% 946
30 1,000 US$1.90-a-day extreme poverty threshold.
25.3% 881
Figure 2.1 depicts the steady decline in
20.4% 800
17.8% 767 the share and total number of the poor in
20
15.6% 600 the world since 1990. Since 2002, in particu-
400
lar, the global headcount ratio has followed
13.5%
10 a steady downward trajectory, showing
12.4%
10.7% 200 no sign of slowing down even during the
0 0 global nancial crisis (200809). Despite
the more rapid demographic growth in
90
93
96
99
02
05
08
20 0
20 1
20 2
13
1
1
1
19
19
19
19
20
20
20
20
Global and regional poverty numbers ination rates. Part of the reason in
and trends are affected by changes some of these countries is that when
in relative prices across economies. the price data required for the PPP
To account for these changes, the estimates were being collected in 2011,
International Comparison Program the countries were undergoing an
has produced PPPs using 2011 as the exceptional period of instability, which
reference year.a A few countries, such inuenced the quality of the exercise.
as Bangladesh, Cabo Verde, Cambodia, For this report, the World Bank has
the Arab Republic of Egypt, Jordan, Iraq, either adopted 2011 PPPs for some
the Lao Peoples Democratic Republic, of these countries after additional
and the Republic of Yemen, were exploration and assessment of the
initially regarded as outliers because quality of the data, or used PPPs based
their 2011 PPPs deviated substantially on regression estimates if quality issues
from expectations based on observed are a special concern.
a. See annex 2B and ICP (International Comparison Program) (database), World Bank, Washing-
ton, DC, http://siteresources.worldbank.org/ICPEXT/Resources/ICP_2011.html.
decades (gure 2.1). There were almost 1.1 from over 1.8 billion to 767 million during
billion fewer people living in poverty world- these years. This implies an average of almost
wide in 2013 than in 1990, a period in which 50 million persons escaping poverty every
the world population grew by almost 1.9 year in net terms, equivalent to the popula-
billion. The total number of poor dropped tion of Colombia or the Republic of Korea.
The progress was even more impressive in
200213, when an average of 75 million peo-
FIGURE 2.2 Where Are the Global Poor ple, similar to the population of Germany or
Living? The Global Poor, by Region, 2013 Turkey, moved out of poverty annually.
Share of global poor by region (%) As extreme poverty has declined globally,
the regional prole of poverty has shifted as
0.8% 9.3% a consequence of uneven progress. In 2013,
1.4%
Sub-Saharan Africa accounted for more of
4.4%
the poor389 million peoplethan all
other regions combined; the share of the
region in the global total was 50.7 percent
(see gure 2.2). This is a remarkable change
50.7%
in the geography of global poverty during
33.4% the two decades since 1990, when half of
the poor were living in East Asia and Pa-
cic. Indeed, Sub-Saharan Africa rst over-
took East Asia and Pacic in 2005 and then
South Asia in 2011 as the region with the
East Asia and Pacic
largest number of the poor worldwide. In
South Asia
Eastern Europe and Central Asia
2013, one-third of the global poor were liv-
Sub-Saharan Africa ing in South Asia. The East Asia and Pacic
Latin America and the Caribbean region was home to 9.3 percent, while the
Rest of the world Latin America and Caribbean region and
the Eastern Europe and Central Asia region
Source: Most recent estimates, based on 2013 data using
PovcalNet (online analysis tool), World Bank, Washington, DC, reported global poverty shares of 4.4 per-
http://iresearch.worldbank.org/PovcalNet/. cent and 1.4 percent, respectively.
GLOBAL POVERTY 37
FIGURE 2.3 Regional and World Trends, Number of the Extreme Poor, 19902013
2,000
1,800
1,400
1,200
1,000
800
600
400
200
0
1990 1993 1996 1999 2002 2005 2008 2011 2013
East Asia and Pacic South Asia
Eastern Europe and Central Asia Sub-Saharan Africa
Latin America and the Caribbean World
Middle East and North Africa
Sources: Annex 2A; most recent estimates, based on 2013 data using PovcalNet (online analysis tool), World Bank, Washington, DC,
http://iresearch.worldbank.org/PovcalNet/.
Note: Poverty is measured using the 2011 US$1.90-a-day PPP poverty line. The breaks in the trends shown in the gure arise because
of the lack of good-quality data.
60
Poverty headcount ratio (%)
50
40
30
20
10
0
1990 1993 1996 1999 2002 2005 2008 2011 2013
East Asia and Pacic South Asia
Eastern Europe and Central Asia Sub-Saharan Africa
Latin America and the Caribbean World
Middle East and North Africa
Sources: Annex 2A; most recent estimates, based on 2013 data using PovcalNet (online analysis tool), World Bank, Washington, DC,
http://iresearch.worldbank.org/PovcalNet/.
Note: Poverty is measured using the 2011 US$1.90-a-day PPP poverty line. Breaks in the trends shown in the gure arise because of
the lack of good-quality data.
ica and Caribbean region (5.4 percent) ap- gion (71 million) and South Asia (37 mil-
peared to taper off in 200813, following lion), which represent respective reductions
the signicant declines in 200208, with in the headcount of 3.6 and 2.4 percentage
annual rates of reduction of 1.0 percent- points. The former is explained largely by
age point in the latter, but only 0.3 in the the substantial contraction in the estimates
former. The Eastern Europe and Central for China and Indonesia, whereas the latter
Asia region maintained a slow, but steady is driven by Indias performance. (For a dis-
decline in the headcount ratio, to around cussion of the methodological changes in
2 percent.6 The poverty estimates in South these countries, see annex 2B.) Meanwhile,
Asia indicate substantial progress, particu- in Sub-Saharan Africa, the number of the
larly in the ve years up to 2013, when the poor declined by only 4 million, a 1.6 per-
annual average reduction reached 2.9 per- centage point change that leaves the average
centage points. Indeed, the region, in which regional headcount ratio at 41.0 percent,
almost one person in two was extremely which is still high. The share of the poor in
poor only 25 years ago, reduced the share Eastern Europe and Central Asia decreased
of poverty dramatically, to 15.1 percent, at by about a quarter of a percentage point,
an average decline of 1.3 percentage points down to 2.3 percent, while in Latin America
a year. and the Caribbean, the share was reduced
In 201213, the changes in poverty were by 0.2 percentage points, leaving the 2013
remarkable. The worlds headcount ratio headcount ratio at 5.4 percent.
fell from 12.4 percent to 10.7 percent, and The largest number of the global poor
the number of the poor declined by 114 live in lower-middle-income countries (g-
million. This sharp drop is mostly explained ure 2.5). This is despite the greater aver-
by the cuts in the number of the poor in age income and lower headcount ratios of
two regions, the East Asia and Pacic re- these countries relative to low-income coun-
GLOBAL POVERTY 39
FIGURE 2.5 Poverty Headcount Ratios car, and Mozambique. The red bars super-
and Number of the Poor, by Country imposed on the headcount ratios in gure
Income, 2013 2.6 show the number of the poor. Among
45 500 the countries with the highest headcount
ratios, at almost 60 percent and above, the
40 450
Democratic Republic of Congo is the coun-
35 400 try housing the largest number of poor by
80
50
Poverty headcount ratio (%)
70
50
30
40
30 20
20
10
10
0 0
ue
ia
au
wi
an
di
pu an
p
ca
nd
mb
Re
biq
ss
Re Afric
ala
ru
as
c
a
Su
bli
Bi
Rw
Za
Bu
m.
ag
am
M
a-
th
De
ad
l
ra
oz
ine
u
So
nt
M
o,
Gu
Ce
ng
Co
Poverty headcount ratio Number of poor (right axis)
Source: Most recent estimates, based on 2013 data using PovcalNet (online analysis tool), World Bank, Washington, DC, http://
iresearch.worldbank.org/PovcalNet/.
Note: Poverty is measured using the 2011 US$1.90-a-day PPP poverty line.
80
200
Poverty headcount ratio (%)
70
40
100
30
20 50
10
0 0
ia
sia
ar
pia
ina
ria
ia
ue
.
ep
es
an
Ind
sc
biq
ge
e
hio
Ch
.R
lad
on
a
nz
Ni
ag
am
em
Et
Ta
ng
Ind
ad
oz
D
Ba
M
M
o,
ng
Co
Source: Most recent estimates, based on 2013 data using PovcalNet (online analysis tool), World Bank, Washington, DC, http://
iresearch.worldbank.org/PovcalNet/.
Note: Poverty is measured using the 2011 US$1.90-a-day PPP poverty line.
people living below the poverty line, espe- count ratio shows a more rapid decline than
cially those living far below it. the poverty gap. This difference in pace has
Figure 2.8 shows the downward trends in been particularly marked since 2010. If this
the global poverty gap and in the headcount difference persists, the downward trend in
ratio over the last two decades. The head- the headcount ratio may begin to taper off
GLOBAL POVERTY 41
FIGURE 2.8 Trends in the Poverty Gap strong reminder that poverty eradication is
and the Global Headcount Ratio, 19902013 well within reach (as also suggested by re-
40
cent projections; box 2.2) and that a better
effort at sharing prosperity would be in-
35 strumental in increasing the speed at which
30 the goal is reached. Chapter 3 examines this
challenge by providing an assessment of the
25
World Banks shared prosperity goal based
Percent 20 on the most recently available data.
15
93
96
99
02
05
08
20 1
13
1
stances and contexts surrounding poverty.
19
19
19
19
20
20
20
20
Poverty gap at $1.90 A large database of household surveys from
Poverty headcount ratio at $1.90 89 developing countries provides insights
into this issue by facilitating demographic
Sources: Annex 2A; most recent estimates, based on 2013 data
using PovcalNet (online analysis tool), World Bank, Washington, proles of the poor at the US$1.90 per per-
DC, http://iresearch.worldbank.org/PovcalNet/. son per day poverty line and at a higher
line of US$3.10 per person.11 These poverty
proles reveal that the global poor are pre-
as the poverty gap more slowly narrows. dominantly rural, young, poorly educated,
This combination may indicate that it is mostly employed in the agricultural sector,
the relatively less poor that are moving out and live in larger households with more
of poverty. This may have important im- children.12 Figure 2.9 reports the share of
plication in terms of slower future poverty the poor who live in rural areas (80 percent
reductions. of the poor worldwide), work in agriculture
Multiplying the income needed to lift (64 percent), are 14 years of age or younger
every poor individual out of poverty by (44 percent), and have no formal education
the total number of the poor in the world (39 percent). The data also conrm wide re-
provides a rough indication of the order of gional variations in the distribution of the
magnitude of the cost of ending poverty. poor across these characteristics.
This is not meant to be a policy prescrip- Figure 2.10 displays the share of the poor
tion or a judgment on specic current poli- at the US$1.90-a-day and the US$3.10-a-
cies but a low-bound approximation of the day global poverty lines by urban or rural
cost of achieving the poverty goal under residence, age category, employment in
stylized and simplifying assumptions, key agriculture or nonagriculture, and educa-
among them is that the income shortfall tional attainment. Poverty rates are more
to the poverty line is a reasonable initial than three times higher among rural res-
approximation to the cost of eliminating idents than among urban dwellers: 18.2
poverty.8 While this represented 1.0 per- percent versus 5.5 percent, respectively.
cent of the worlds GDP in 1990, it would Agricultural workers are more than four
have required less than 0.2 percent in 2013, times more likely to be poor relative to peo-
which is 10.0 percent more than all the of- ple employed in other sectors of the econ-
cial development assistance that year.9 It omy. Educational attainment is inversely
is also about 50 percent of the tax revenue correlated with poverty. A small share of
estimated to be annually lost through tax primary-school graduates are living in pov-
avoidance.10 The income shortfall relative erty: the share of people who completed
to the poverty line among the worldwide primary school but not secondary school
poor is therefore almost negligible in com- and who are living below the US$1.90 pov-
parison with the global economy. This is a erty line is 8.0 percent. Among those who
In 2015, the World Bank published a growth more accurately: 0.72 for
projected extreme poverty headcount China and 0.51 for India. Furthermore,
ratio9.6 percent of the worlds it is assumed that projected growth
population for that yearusing $1.90- was distributionally neutral between
a-day poverty line at 2011 PPP. In 2016, 2013the latest year for which poverty
the analytical exercise was repeated is actually estimated, not projected
using the same methodology. The and 2016. This means that the gains
projected global poverty headcount ratio of growth are assumed to have been
for 2016 is 9.1 percent. equally distributed across population
This projection is based on the latest groups in each country, for example,
available household survey information among poor and nonpoor households.
on each country and incorporates This methodological description
assumptions that allow past highlights that poverty projections are
consumption and income to be updated associated with additional challenges
to current levels. Thus, the exercise relative to poverty estimates. This
applied a national accountsbased increases the uncertainty around the
growth rate to adjust the latest available accuracy of the projections. Producing
survey mean income or consumption projections requires that consumption
to 2016. The growth projection of per or income data derived from actual
capita private consumption expenditure observations in every country, for
was used across the board except for instance, from household surveys,
the Sub-Saharan Africa region, where be adjusted to estimate more recent
the growth projection of per capita GDP income or consumption. This is so
was used instead. Elsewhere, projected because, in the projected year, 2016 in
GDP growth was used only if growth this case, there is no available household
projections for private consumption survey from which to draw estimates.
expenditure were missing in a given Moreover, the growth rates used in this
country. In four countries, both GDP exercise rely on projections rather than
and private consumption expenditure observed, revised, and vetted rates for
were missing; so the average growth 2016. The further ahead projections
rate of per capita GDP during the three look relative to a reference year, the
most recent years available was used. more the assumption that the past is a
Empirically, it has been established that, good measure of the future becomes
on average, household surveybased questionable. Thus, even the growth
growth captures about 87 percent projections between 2013 and 2016
of national accountsbased growth.a do not fully capture global and regional
As a consequence, in the application shifts, such as the weakening of
of national accountsbased growth international commodity prices or the
projections to update household survey slower growth in Latin America and the
based consumption or income means, Caribbean, in Sub-Saharan Africa, or,
an adjustment factor of 0.87 was used more generally, among emerging market
across the board, except for China and economies and low-income economies.b
India, where alternative factors reect For these reasons, poverty projections
the discrepancies between national need to be viewed with extreme
account and household surveybased caution.
Source: World Bank calculations.
a. Ravallion (2003).
b. World Bank (2016).
have attended university, the share is 1.5 A complete demographic poverty prole
percent.13 Similar differences are observed should also include a gender dimension.
if poverty incidence is measured relative to However, the global poverty database does
the US$3.10-a-day poverty line. not contain information on the consump-
GLOBAL POVERTY 43
FIGURE 2.9 Profile of the Poor, by Characteristics and Region, 2013 tion or incomes of individuals within a
household, only on the total and per capita
household consumption or income. With-
Share of poor out information on the intrahousehold al-
in rural areas location and use of resources, the study of
gender poverty trends and proles must
remain limited to differences in poverty
Share of poor adults rates between woman-headed and man-
working in agriculture headed households. Yet, woman-headed
households may not be representative of
the welfare of many women in develop-
Share of poor ing countries. Women may head a house-
014 years old hold because they have the means to live
independently or because men household
members are absent but sending remit-
Share of poor adults tances. Women in such households would
with no education show lower poverty rates. There are, how-
ever, other contexts in which estimates of
0 10 20 30 40 50 60 70 80 90 poverty headcount ratios may be higher in
Percent
gender terms. For instance, in situations of
East Asia and Pacic South Asia
national or local conict, households led
Eastern Europe and Central Asia Sub-Saharan Africa by widows may be a signicant share of all
Latin America and the Carribean World households and present disproportionally
Source: Castaeda et al. 2016. high poverty rates. Using the characteristics
Note: Poverty is measured using the 2011 US$1.90-a-day PPP poverty line. of household heads does not provide a reli-
able picture of gender gaps because it over-
looks intrahousehold discrimination and
FIGURE 2.10 Profile of the Extreme and Moderate Poor, by Selected uncooperative practices within households
Characteristics, 2013 in sharing resources evenly and according
to each members needs.14
Adults
Meanwhile, age proles conrm that
Age
8.6%
15.4%
44.0% 5.1%
12.9% 57.6%
6.0%
household allocation and use of resources. adapted to account for the fact that the
They also assume identical physical needs international per capita poverty standard
across household members of different ages does not reect differing individual needs.18
and ignore the scale economies associated While there is widespread agreement on the
with larger households.16 Strong assump- benet of making such adjustments, there
tions are required to address intrahouse- is no agreement on how to do this properly.
hold allocation issues with the information Nonetheless, recent evidence using alterna-
currently available through household sur- tive equivalence scales, economies of scale,
veys.17 Variations in physical need and scale and possible adjustments of the US$1.90 in-
economies, however, are often addressed ternational poverty line conrms beyond a
through the use of equivalence scales. More- doubt that children exhibit higher poverty
over, the US$1.90-a-day threshold can be rates than adults.19
GLOBAL POVERTY 45
Annex 2A
Source: Most recent estimates, based on 2013 data using PovcalNet (online analysis tool), World Bank, Washington, DC, http://iresearch.worldbank.org/PovcalNet/.
The new 2016 round of global poverty mea- Changes in household survey
sures based on the most recent available data
data incorporates the following changes
from the 2015 round of poverty measures. More than 35 new household surveys have
This annex explains changes in the PPPs, been added to the World Banks global data-
the household survey data, the consumer base, and over 100 other surveys have been
price index (CPI), population data, and na- updated. See Global Consumption Data-
tional accounts. It also denes the regions base, World Bank, Washington, DC, http://
used throughout the report. datatopics.worldbank.org/consumption/.
The World Banks global poverty and
Changes in purchasing power shared prosperity monitoring taskforce uses
more than 1,200 household surveys from
parities
about 150 countries. See, for example, GDSP
In the new 2016 round, the poverty mea- (Global Database of Shared Prosperity),
sures for all countries are based on con- World Bank, Washington, DC, http://www
sumption PPPs from the 2011 round of .worldbank.org/en/topic/poverty/brief/
data collection by the International Com- global-database-of-shared-prosperity.
parison Program; see ICP (International
Comparison Program) (database), World
Bank, Washington, DC, http://siteresources. Changes in the CPI, population
world bank.org/ICPEXT/Resources/ICP data, and national accounts
_2011.html. The PPP exchange rates in- data
clude benchmark countries where actual
price surveys were conducted, as well as re- The CPI data used for global poverty
gression-based PPP estimates where such estimation among 116 countries are taken
surveys were not conducted. Details on the from the WDI database. See WDI (World
regression model for the PPP estimation Development Indicators) (database), World
can be found in World Bank (2015). Bank, Washington, DC, http://data.world
Changes in the countries that, in the bank.org/data-catalog/world-development
previous 2015 round, still used 2005 PPPs -indicators.
instead of 2011 PPPs include the follow- China and India use rural and urban
ing: (1) the 2005 PPPs of Bangladesh, Cabo CPIs (as provided by the national statis-
Verde, Cambodia, and Lao PDR are re- tics ofces). Monthly CPIs are used by
placed in this round by 2011 PPPs; (2) for 25 countries; most are in the Latin America
countries in the International Comparison and the Caribbean region. Another seven
Program region of West Asia, 2011 regres- countriesBangladesh, Cambodia, Ghana,
sion-based consumption PPPs are used in Iraq, Lao PDR, Malawi, and Tajikistanuse
this round. the implied, that is, the expected CPI.
GLOBAL POVERTY 47
Population data have been updated as regression-based PPPs and 2011 PPPs, de-
part of the global poverty estimation exer- pending on the country).
cise. Most population data differ from the
data of the previous year. Total population
Bangladeshs poverty numbers
changes in 21 countries are signicant, that
is, they range between 0.5 million and 4.5 A detailed assessment of price data in Ban-
million. gladesh involving the Bangladesh Bureau of
National accounts data have also been Statistics and the Asian Development Bank
updated: per capita GDP, private consump- has recently determined that the price data
tion, and expenditure data have all been is of good quality and that the 2011 PPP
updated. reects the purchasing power of the Ban-
gladesh taka relative to the U.S. dollar more
Middle East and North Africa accurately than the 2005 PPP does. There-
region fore, the World Bank has adopted the 2011
US$1.90 a day PPP to measure the extreme
As part of this new round of global pov- poverty index for Bangladesh in the context
erty measurement, a detailed reassessment of global extreme poverty monitoring. Ac-
of the 2011 PPPs has been conducted for cording to the new estimates, the propor-
Egypt, Iraq, Jordan, and the Republic of tion of the extreme poor in Bangladesh was
Yemen. It found that the coverage and qual- 18.5 percent in 2010, the year of the most
ity of the 2011 PPP price data for most of recent household survey. This represents a
these countries were hindered by the ex- signicantly lower estimate than the pre-
ceptional period of instability they faced at vious one for that year (43.3 percent). Yet,
the time of the 2011 exercise of the Inter- the update of the historical poverty rates in
national Comparison Program. Moreover, Bangladesh using the US$1.90 poverty line
the poverty estimates resulting from using consistently shows the stable and sizable
alternative regression-based PPPs still seem reduction in poverty since 1990 more ac-
to underestimate poverty severely in these curately than the previous series using the
economies, as well as in Lebanon and the 2005 $1.25-a-day PPP poverty line.
Syrian Arab Republic (but not in West Bank
and Gaza).
In the Middle East and North Africa re- Chinas 2013 survey
gion, the exclusion of Egypt, Iraq, Jordan, A large part of the decline in poverty inci-
and the Republic of Yemen and the lack of dence in East Asia and Pacic in this new
recent data on Algeria and Syria imply that round based on 2013 data is attributable to
the remaining countries account for only China and Indonesia. The 2013 household
a third of the regions population, below survey in China is the rst integrated na-
the 40 percent threshold of regional pop- tionwide household survey in that country.
ulation coverage needed to report region- This means that it is not comparable with
representative estimates. the previous household surveys, in which
Adding to this low coverage is the fact rural and urban areas were sampled sep-
that the failure to include data on Egypt, arately. In addition, the most signicant
Iraq, and the Republic of Yemen and the change in the 2013 national household sur-
lack of recent data on Syria, which are likely vey relative to previous household surveys
to face increasing poverty rates due to insta- was the inclusion of imputed rents into in-
bility and civil conicts, will seriously un- come and consumption aggregates for the
derestimate regional poverty rates. rst time.
As a compromise between precision In 201213, Chinas poverty rate based
and coverage, the regional poverty to- on a US$1.90-a-day poverty line (in 2011
tals and headcount ratios are not reported PPP) declined by about 4 percentage points,
for the Middle East and North Africa, but of which half, that is, about 2 percentage
an estimate of the number of the poor points, can be traced to changes in the sur-
is included in the global total (based on vey methodology. The actual poverty reduc-
Sources: Annex 2A; most recent estimates, based on 2013 data using PovcalNet (online analysis tool), World Bank, Washington, DC,
http://iresearch.worldbank.org/PovcalNet/.
tion not explained by these methodological Reference Period has also been used in
changes was therefore 2 percentage points the collection of consumption data. The
in 201213 (table 2.1 in the main text and methodology is closer to best international
table 2B.1 above). practice. It relies on recall periods among
The World Banks poverty estimates on respondents of 7, 30, and 365 days, depend-
China are based on grouped distributions, ing on the items of consumption. If the con-
which are often not as precise as direct sumption estimate derived from the latter
estimates based on the full distribution of methodology had been used to estimate In-
household income and consumption aggre- dias poverty rate, the result at the US$1.90
gates. In 2013, Chinas poverty headcount poverty line would have been a substantially
ratio under the US$1.90-a-day poverty line lower 12.4 percent in 2011/2012. The ap-
was 2.2 percent using individual record plication of the methodology is still being
data, as conrmed by the National Bureau tested. Its adoption would eventually lead to
of Statistics, while it was 1.9 percent based a substantial downward revision of the pov-
on grouped data. erty numbers in India.
GLOBAL POVERTY 49
gin Islands; Brunei Darussalam; Canada; Monaco; Netherlands; New Caledonia; New
Cayman Islands; Channel Islands; Curacao; Zealand; Norway; Oman; Portugal; Qatar;
Cyprus; Denmark; Finland; France; French Saint-Martin; Saudi Arabia; Singapore; Sint
Guiana; French Polynesia; Germany; Gi- Maarten; Spain; St. Kitts and Nevis; Sweden;
braltar; Greece; Greenland; Guadeloupe; Switzerland; Taiwan, China; Turks and Ca-
Guam; Iceland; Ireland; Isle of Man; Israel; icos Islands; United Arab Emirates; United
Italy; Japan; Korea; Kuwait; Liechtenstein; Kingdom; United States; and the U.S. Virgin
Luxembourg; Macao SAR, China; Malta; Islands.
Notes
1. World Bank (1990). region were to continue their trends in the
2. The remarkable increase in the availability reduction of the number of the poor in the
and use of household surveys has allowed an last decade, they may be close to eradicating
enhancement in the coverage of global pov- extreme poverty soon. This will depend on
erty data. During the early stages of global their success in addressing remaining pock-
poverty measurement, much depended on ets of poverty.
imputations based on a few countries. Over 7. With the exception of the Seychelles, the re-
two decades later, the World Banks global gions poverty data are based on consumption.
poverty and shared prosperity monitoring 8. The resources needed to help all the poor
task relies on more than 1,200 household reach a standard of living at the poverty
surveys from about 150 countries. line through policy interventions would
3. The calculation is in net terms. Of the 114 surely be greater than the aggregated in-
million reduction in the number of the come shortfall to the poverty line if realistic
poor, 31 million correspond to methodolog- assumptions about the administrative costs
ical changes implemented in Chinas 2013 involved in identifying the poor, targeting,
national survey, which, for the rst time, ensuring effectiveness, delivery, coordina-
incorporated imputed rents and replaces the tion, use of country systems, and respond-
previously separate rural and urban surveys. ing to political economy considerations are
4. This means that the number of the poor was taken into account. These costs would cer-
growing more slowly than the total popula- tainly render the amount identied in the
tion during this period. text insufcient to eradicate poverty even if
5. Bifurcation is the term sometimes used to the allocation was perfect. The analysis here
describe the fact that half the countries in is therefore merely informative about orders
Sub-Saharan Africa have done relatively well of magnitude in relative economic terms.
in terms of distributional changes, while the 9. WDI (World Development Indicators)
other half have not (Beegle et al. 2016). (database), World Bank, Washington, DC,
6. If the historical experiences of countries that http://data.worldbank.org/data-catalog
have already eliminated poverty is a good /world-development-indicators.
indication of the future, the pace of poverty 10. Zucman (2015).
reduction in some regions should taper off. 11. This section draws largely on Castaeda
Some countries that have eliminated pov- et al. (2016) and Newhouse et al. (2016).
erty experienced poverty rates falling al- 12. Castaeda et al. (2016).
most linearly to zero, while the rates in other 13. Castaeda et al. (2016) analyze the robust-
countries declined more slowly. For exam- ness of these results by comparing different
ple, Austria and Japan sustained a linear re- lineup methods and different ways to adjust
duction in both the number and the share of welfare aggregates, weights, and poverty
the poor as they neared poverty eradication. lines. They nd only minimal differences.
If the Latin America and Caribbean region They also check for xed effects and sensi-
and the Eastern Europe and Central Asia tivity to missing data. The resulting demo-
GLOBAL POVERTY 51
Shared Prosperity 3
This chapter reports on the latest progress achieved in the promotion of shared prosperity
worldwide. Shared prosperity is measured as the growth in the income or consumption of
the bottom 40 percent of the population in a country (the bottom 40). The larger the growth
rate in the incomes of the bottom 40, the more quickly economic progress is shared with
the poorer segments of society. Performance on this indicator is examined by country rather
than globally.
The latest data suggest that the bottom 40 beneted from income growth in many coun-
tries in circa 200813 even though the period encompasses the global nancial crisis of
200809. Overall, the bottom 40 experienced positive income growth in 60 of the 83 coun-
tries monitored. This means that 89 percent of the population covered in the dataset resided
in countries in which the income or consumption of the bottom 40 grew. A total of 49 coun-
tries reported a positive shared prosperity premium: the income growth among the bottom
40 exceeded that of the mean (and therefore, the income growth of the top 60).
Nonetheless, there is no room for complacency. In 23 of the countries, the incomes
of the bottom 40 declined, and, in 15 of the countries, the contraction in the income or
consumption of the bottom 40 was larger than the corresponding contraction at the mean.
In these countries, the living conditions deteriorated more quickly among the bottom 40 than
among the rest of the population.
SHARED PROSPERITY 53
TABLE 3.1 Shared Prosperity, Circa 200813
Countries, Population- Countries,
growth in Countries, Country Countries, weighted Palma
Countries Population Population mean < 0 SP > 0 average SP premium average, SP premium, > 0
Region (number) (millions) (%) (number) (number) SP (%) > 0 (number) premium (pp)a (pp) (number)b
East Asia and Pacic 8 2006.2 94 0 8 5.0 7 0.7 7
Eastern Europe and Central Asia 24 479.1 89 10 15 1.5 12 0.3 14
Latin American and the Caribbean 16 622.0 86 3 15 4.1 12 1.4 12
Middle East and North Africa 2 350.1 32 1 2 1.8 1 2.7 1
South Asia 4 1,698.1 87 0 4 3.7 3 0.4 2
Sub-Saharan Africa 9 948.3 23 1 8 2.7 4 0.6 5
Industrialized countries 20 1,072.4 68 10 8 1.0 10 0.2 11
World 83 7,176.1 75 25 60 2.0 49 0.4 52
Source: GDSP (Global Database of Shared Prosperity), World Bank, Washington, DC, http://www.worldbank.org/en/topic/poverty/brief/global-database-of-shared-prosperity.
Note: SP = shared prosperity (growth in average income or consumption of bottom 40). pp = percentage point. Population coverage refers to 2013.
a. Population-weighted shared prosperity premiums are relative to the covered population in each region or in the world.
b. The Palma premium (p) is here dened as the difference between the growth in the mean of the bottom 40 and the growth in the mean of the top decile (p g40 gt10).
latter is a stark reminder of the data gaps growth rates of 2.7 percent in Sub-Saharan
(see chapter 1). Africa, 1.8 percent in the Middle East and
Though the period encompassed the North Africa, and 1.5 percent in Eastern
global nancial crisis of 200809, the growth Europe and Central Asia. The bottom 40 in
in income of the bottom 40 was positive in 60 industrialized countries experienced an av-
of the 83 countries, and negative in the other erage contraction of 1.0 percent of income.
23 in 200813 (table 3.1). Of the worlds pop- Figure 3.1 reports country-specic per-
ulation, 67 percent (89 percent of the pop- formance. Countries are ranked by the size
ulation captured by the Global Database of of the income growth of the bottom 40 (from
Shared Prosperity) were living in countries largest positive growth to largest contrac-
in which the income or the consumption of tion) within each region. For each country,
the bottom 40 grew in 200813.3 This is a the growth in the income or consumption of
substantial proportion, particularly because the bottom 40 is compared with the growth
one-quarter of the worlds population is not in income or consumption of the mean. The
covered by the dataset and could presum- Democratic Republic of Congo showed the
ably increase the share.4 The simple average largest income growth rate among the bot-
income or consumption growth among the tom 40, an annualized rate of 9.6 percent in
bottom 40 across all countries monitored circa 200813. Five countries saw growth
was 2.0 percent. If the worldwide estimate rates of income or consumption of the
is calculated weighing each countrys popu- bottom 40 of 8.0 percent or above, namely,
lation, the resulting average shared prosper- Belarus, China, Democratic Republic of
ity is more than double the unweighted in- Congo, Mongolia, and Paraguay. A growth
dicator, reaching an annualized 4.3 percent. rate in the income or consumption of the
The strong performance of highly populated bottom 40 ranging between 4.0 percent and
countries such as Brazil, China, India, and 8.0 percent was reported in 19 countries:
Indonesia drive this result. Bhutan, Bolivia, Brazil, Cambodia, Chile,
All regions report positive average in- Colombia, Ecuador, Georgia, Kazakhstan,
come or consumption growth among the the former Yugoslav Republic of Macedo-
bottom 40. East Asia and Pacic, Latin nia, Moldova, Nicaragua, Panama, Peru, the
America and the Caribbean, and South Asia Russian Federation, the Slovak Republic,
showed the best average growth perfor- Thailand, Uruguay, and Vietnam. This rank-
mance among the bottom 40, with annual- ing suggests that large increases occurred
ized rates of 5.0 percent, 4.1 percent, and 3.7 in all regions and among low-, middle-, and
percent, respectively. They are followed by high-income countries.
10 5 0 5 10
Annualized growth in mean income or consumption (%)
Total population Bottom 40
Source: GDSP (Global Database of Shared Prosperity), World Bank, Washington, DC, http://www.worldbank.org/en/topic/poverty
/brief/global-database-of-shared-prosperity.
Note: The data show the annualized growth in mean household per capita income or consumption. See table 3A.1, annex 3A.
Greece experienced the largest contrac- the top 60 was 2.1 percent a year in Cam-
tion in incomes among the bottom 40, an bodia and 5.3 percent in Cameroon. Such
annualized 10.0 percent decline in 200813. differences produce contrasting effects on
Other countries with large contractions in inequality trends. While, in Cambodia, the
the income or consumption of the bottom Gini index fell by 4.4 points during the spell,
40, at 3.0 percent or more annually, were and it rose by 3.7 points in Cameroon.6
Croatia, Iceland, Ireland, Italy, and Latvia. A comparison of shared prosperity
The negative performance reects the prob- premiums across the countries on which
lems of a period marked by the 200809 information is availablethe monitored
global nancial crisis and its repercussions, sample of 83 countriesdescribes a gen-
which are still widely felt in Western Europe erally positive picture. Of the entire sample
and in Eastern Europe and Central Asia. In circa 200813, income growth among the
Latin America, Honduras is the only coun- bottom 40 was greater than the growth of
try showing a contraction (2.5 percent an- the mean in 49 countries. In the remaining
nually). In 15 of the 23 countries exhibiting 34 countries, the bottom 40 fared less well
negative growth in the income or consump- than the rest of the population. Globally,
tion of the bottom 40, the contraction was the population-weighted shared prosperity
greater than that of the mean (see gure 3.1). premium is positive, but small, at 0.4 per-
centage points, similar to the average across
countries (0.5 percentage points).
The bottom 40 in relative Around 3.5 billion people were living
terms: the shared in countries in which the shared prosper-
prosperity premium ity premium was positive in circa 200813.
This represents 65 percent of the popu-
The second World Bank goal, enhancing lation covered by the sample of countries
shared prosperity, focuses on growth in monitored (5.4 billion people, or 75 per-
the income or consumption of the bottom cent of the world population). In contrast,
40, but a comparison between this and the almost 1.9 billion people, or 35 percent of
income or consumption growth of the en- the population covered, are living in coun-
tire population, that is, the growth of the tries that experienced a negative premium.
mean, supplies insights into how the gains China and India, which, together, represent
of economic growth are shared across so- 37 percent of the world population and 49
ciety more generally. Such a comparison percent of the population covered in the
indicates the extent to which distributional monitored sample, drive much of these ag-
changes favor this group relative to the gregate results, with opposed shared pros-
top 60. The additional growth represents a perity premiums of 0.6 and 0.5 percentage
premium among the bottom 40 relative to points, respectively.
the mean, the shared prosperity premium. Regionally, 7 of 8 countries in East Asia
If the premium is positive, the bottom 40 and Pacic (almost 100 percent of the re-
outperforms the average growth rate of gional population) and 12 of 16 countries
total income and of the top 60. If the pre- in Latin America and the Caribbean (74
mium is negative, the overall growth rate percent) show positive shared prosperity
and that of the top 60 exceed that of the premiums, while this is true of 3 of 4 coun-
bottom 40.5 tries in South Asia (only 14 percent of the
Consider the stark comparison between regional population because of Indias neg-
Cambodia and Cameroon, two countries ative shared prosperity premium). Less en-
with similar average consumption growth couraging are the results in Eastern Europe
across the population, 3.9 percent and 3.7 and Central Asia, in industrialized coun-
percent, respectively, circa 200813, but tries, and in Sub-Saharan Africa, where
showing different growth values among the positive and negative shared prosperity pre-
bottom 40: high in Cambodia, 6.5 percent, miums are observed in similar proportions
but weak in Cameroon, 1.3 percent. This within each of the three regions. This is also
implies that the growth in consumption of true of the Middle East and North Africa,
SHARED PROSPERITY 57
FIGURE 3.2 The Bottom 40, Brazil, India, and the United States, the group of people on whom the second
circa 2013 World Bank goal, the shared prosperity goal,
64,000 United States, 2013
focuses is not the same as the poor globally,
on whom the rst goal focuses. The most
32,000 recently updated estimates available show
Annual income/consumption per capita
Brazil, 2013
that, while 88.5 percent of the extreme poor
16,000 in the world are among the bottom 40 in
(2011 PPP, log scale)
The overlap between the populations while 11.5 percent were among the top
in the bottom 40 and the global poor 60 (yellow area). In 2013, the bottom 40
varies across countries. Figure B3.1.1 represented 2.9 billion people (red and
illustrates how the extreme poor, blue areas). Of this group, 24.0 percent
the bottom 40, and the top 60 were (red area) were among the extreme poor,
distributed globally in 2013. The full and 76.0 percent (blue area) were not.
area represents the world population. In This illustrates how the extreme poor
2013, the extreme poor (yellow and red are mostly situated within the bottom 40
areas) covered about 10.7 percent of the of their countries of residence. However,
world population. Of the extreme poor, it also demonstrates that a large share of
88.5 percent were within the bottom 40 the bottom 40 across the world are not
in their respective countries (red area), among the extreme poor.
FIGURE B3.1.1 Distribution of the Extreme Poor, the Nonpoor, the Bottom 40,
and the Top 60, 2013
100
90
80
70
National percentile
60
50
40
30
20
10
0
0 1,000 2,000 3,000 4,000 5,000 6,000 7,000
Cumulative global polulation
Top 60, nonpoor Bottom 40, nonpoor
Top 60, poor Bottom 40, poor
Source: Inspired by Beegle et al. 2014 and updated with 2013 data.
Note: The gure has been constructed from vertical bars representing countries sorted in descending order by extreme
poverty headcount ratio (from left to right). The width of each bar reects the size of the national population. The gure
thus illustrates the situation across the total global population.
SHARED PROSPERITY 59
FIGURE 3.3 Income Group Composition, the Bottom 40, Selected Countries, Circa 2013
Thailand
Russian Federation
Turkey
Chile
Kyrgyz Republic
Costa Rica
Armenia
Peru
Brazil
Honduras
India
Togo
Congo, Dem. Rep.
0 10 20 30 40 50 60 70 80 90 100
Share of population (%)
Extreme poor (< $1.90 a day) < 2x the poverty line
< 5x the poverty line > 5x the poverty line
in gross domestic product (GDP) of these changes in distribution has been the main
economies plummeted to negative values driver of poverty reduction. However, it is
or zero, followed by a strong rebound in a mathematical fact that, in a context of a
2010. Growth then declined again, mark- slowdown in growth, a more equal distri-
ing a second dip. In the United States, the bution will be required to achieve the same
dip was short-lived because the economy poverty reduction.
rebounded in 2012, but then dipped once This begs the question of whether the
more in 2013 (the third dip). In Europe, the goal of ending poverty is still within reach
rebound took longer and materialized in if such sluggish growth rates and inequal-
2014. Growth in the BRICS economies has ity levels were to persist. Simulations have
been slowing since 2011. been conducted to address this question
More recently, the worldwide growth (box 3.2). Figure 3.4 shows the results of
outlook has been revised downward sev- simulations of the trajectory of the global
eral times, especially among commodity- poverty headcount ratio under various as-
exporting countries. For example, the World sumptions about the level of growth and
Bank growth update in June 2016 reduced changes in the distribution, as measured by
its estimate of global GDP growth for 2017 the shared prosperity premium (see above).
from 3.1 percent to 2.8 percent relative This helps simulate the impact that changes
to the forecast in January 2016 and from in the shared prosperity premium have on
3.2 percent to 2.4 percent for commodity- the global headcount ratio over time. As-
exporting emerging and developing econ- suming, in these simulations, that every
omies.11 Longer-term projections also sug- economy continues to grow at the rate of
gest declining growth rates in 201030, well the 10 years leading up to 2013, the poverty
below the 200010 average rates.12 These goal can only be reached with a positive
downward revisions of economic growth shared prosperity premium (panel a, gure
should not lead to doubts about the ability 3.4). This means that the bottom 40 needs
of growth to reduce poverty and the com- to grow on average more quickly than the
pelling evidence that growth rather than mean. The solid line in panel a, gure 3.4,
The simulations in gure 3.4 begin with imposed on all countries. A linear
the most updated household surveys growth incidence curve is assumed so
in 2013.a In the simulations up to 2030, as to specify the distributional change
country mean income is assumed to fully, which, for simplicity, is imposed
grow at a constant country-specic on all countries regardless of past
rate based on historic growth rates performance. This is only one of the
in the national accounts, adjusted for possible assumptions about the nature
the observed differences between the of the pro-poor growth that could take
national accounts and the growth shown place in the future among the innite
in household surveys. For the historic ways one might attain a given positive
growth rates, two periods are presented shared prosperity premium consistent
here: the 10 years and 20 years leading with a specic growth rate in the
up to 2013. For country population, mean. The report website incorporates
United Nations projections are used.b an interactive online tool that allows
Different distributional changes dened users to produce their own simulations
by the shared prosperity premium are independently by choosing a growth
incorporated. This premium is dened rate for the mean across countries and
as the difference between the growth for the shared prosperity premium.
of the bottom 40 and the growth in The Stata program developed for these
the mean, and it can be positive (the simulations is also publicly available on
pro-poor scenario) or negative (the pro- the website. This program can be used
rich scenario). The different headcount with both grouped and microdata and
trajectories correspond to a single value accommodates a range of functional
for the shared prosperity premium forms of the growth incidence curve.
shows the distribution-neutral scenario, to be clear that this is the analytical result
which is the poverty trajectory without any from a set of simulations. However, in prac-
distributional change, that is, if the growth tice, this does not mean that every country
of the bottom 40 and the growth of the must improve the distribution of incomes
mean are equal. Without distributional to achieve the poverty goal by 2030. The
changes, more than 4 percent of the worlds result indicates that, under current average
population are projected to be poor in 2030, growth trajectories, reductions in inequal-
above the World Bank 3 percent goal. ity will be key to reaching the poverty goal
Under a scenario whereby growth is more by 2030. This is so under specic assump-
inclusive, the global poverty headcount is tions about how economic growth and
simulated to reach less than 3 percent in the related distributive changes will occur
2030. This would be achieved through a up to 2030. For the poverty goal to be ac-
shared prosperity premium of 1 percentage complished by 2030, improvements in the
point, that is, a scenario whereby the growth distribution of incomes need to take place
in the income of the bottom 40 exceeds, on among countries in which there are high
average, the growth in the income of the numbers of poor, relatively wide inequality
mean by 1 percentage point worldwide. If levels, and weak economic growth.
the premium were 2 percentage points, the These simulations offer a good indica-
goal of a 3 percent global headcount ratio tion of the challenges ahead. Under a sce-
would be achieved by 2025. It is important nario based on the 10-year historic growth
SHARED PROSPERITY 61
FIGURE 3.4 Boosting Shared Prosperity and Ending Poverty, 201330
a. 10-year growth rates b. 20-year growth rates
12 12
Share of global population living < $1.90/day (%)
8 8
6 6
4 4
3 3
2 2
1 1
20 3
20 4
20 5
20 6
20 7
20 8
20 9
20 0
20 1
20 2
20 3
20 4
20 5
20 6
20 7
20 8
20 9
30
20 3
20 4
20 5
20 6
20 7
20 8
20 9
20 0
20 1
20 2
20 3
20 4
20 5
20 6
20 7
20 8
20 9
30
1
1
1
1
1
1
1
2
2
2
2
2
2
2
2
2
2
1
1
1
1
1
1
1
2
2
2
2
2
2
2
2
2
2
20
20
m = 0 (distribution neutral) m = 1 (falling inequality) m = 2 (falling inequality)
m = 1 (rising inequality) m = 2 (rising inequality) 2030 goal
rates, a shared prosperity premium of at 2030 if the average 20-year growth rates per-
least 1 percentage point would be needed sist until 2030.
to achieve the poverty goal by 2030. This is Based on these simulations, the goal of
twice the average level of shared prosperity eliminating extreme poverty by 2030 can-
premiums observed between 2008 and 2013 not be achieved unless prosperity is shared
(0.5). This stresses the importance of accel- more quickly, growth rates are greater than
erating the sharing of prosperity especially the 10- and 20-year historical averages used
within countries having large numbers of in the simulations, or both. Nonetheless,
the extreme poor. Pro-rich scenarios with this is entirely possible, particularly be-
negative shared prosperity premiums, that cause these ndings are simulations, not
is, the income growth of the mean exceeds predictions.13
that of the bottom 40, show that the 3 per-
cent goal in the global headcount ratio Conclusions: continued
would not be reached by 2030.
progress, but no room
Panel b in gure 3.4 shows that the
simulations based on the country-specic for complacency
growth rates over the last 20 years before The diagnosis of shared prosperity in the
2013 (which, on average, are lower than countries on which data are available circa
the 10-year historic growth rates) require 200813 is fairly favorable in terms of both
an even greater shared prosperity premium the headline indicator of growth in income
to achieve the poverty goal. For instance, or consumption among the bottom 40 and
under the distribution-neutral growth path, the shared prosperity premium. In 60 of the
the projected poverty headcount in 2030 83 countries on which it is possible to con-
is over 5 percent with the 20-year growth struct these indicators, there has been prog-
rates, compared with 4 percent with the last ress toward achieving shared prosperity,
10-year growth rates. Indeed, the average and, in 49 countries, the shared prosperity
shared prosperity premium of 1 percentage premium has been positive. This means that
point will not fulll the World Bank goal by 89 percent and 65 percent of the population
SHARED PROSPERITY 63
Annex 3A
SHARED PROSPERITY 65
Notes (200914), at 2.1 percentage points; yet, the
bottom 40 gained only an extra US$1.38 a
1. GDSP (Global Database of Shared Prosper- day, while the population as a whole gained
ity), World Bank, Washington, DC, http:// an extra US$3.35 on average. In Russia
www.worldbank.org/en/topic/poverty/brief (200712), a small positive shared prosperity
/global-database-of-shared-prosperity. premium translated into a gain of US$2.50
2. As a consequence, the results on shared among the bottom 40 and a gain of US$5.69
prosperity may be affected by selection bias at the national mean. The more unequal a
if countries having poorer survey coverage country is initially, the less effective a posi-
also perform relatively poorly. tive shared prosperity premium becomes in
3. GDSP (Global Database of Shared Prosper- offsetting inequality. A more unequal coun-
ity), World Bank, Washington, DC, http:// try is also much more likely to have a positive
www.worldbank.org/en/topic/poverty/brief shared prosperity premium. If the bottom
/global-database-of-shared-prosperity. 40 are quite poor, then every extra US$0.01
4. The sample-based average may even under- will make a large difference in the growth
estimate the true share of the population rate. Conversely, if the top of the popula-
exhibiting positive growth in the income of tion distribution is quite rich, they will need
the bottom 40 worldwide. This is so because much more extra income to make a dent in
the dataset used for this analysis covers 75 the growth rate in income. A positive shared
percent of the total population. To the ex- prosperity premium is a necessary rst step
tent that the remaining 25 percent includes in promoting equality, but it is rarely suf-
countries in which the incomes of the bot- cient alone to close the inequality gap.
tom 40 grew, the reported average underesti- 6. Reported changes refer to 200812 in Cam-
mates the true value. bodia and 200714 in Cameroon.
5. The shared prosperity premium is a relative 7. The premium is named after Jos Gabriel
measure in the sense that it analyzes income Palma, a Chilean economist who has long
gains relative to initial income. For an indi- been devoted to the study of inequality. The
vidual with an initial income of US$1.00, a Palma premium is inspired by the Palma
10 percent increase in income means an extra ratio, but they are not identical. The latter
US$0.10 in income, whereas, for an individ- is the ratio of the income share of the top
ual with an income of US$1,000, a 10 percent 10 to that of the bottom 40, while the pre-
increase corresponds to an extra US$100. A mium is dened as the difference in income
positive shared prosperity premium means growth among these groups. See Cobham
that the relative income or consumption and Sumner (2016); Palma (2016).
growth rate among the bottom 40 is larger 8. PovcalNet (online analysis tool), World
than the relative growth rate in the rest of Bank, Washington, DC, http://iresearch
society. However, this does not necessarily .worldbank.org/PovcalNet/.
mean that the bottom 40 gain more income 9. The issue of missing top incomes is dis-
in absolute terms. If the initial inequality is cussed in more detail in chapter 4, box 4.5.
wide, the bottom 40 may show above aver- The chapter also discusses evidence based
age growth in incomes, but still gain less in on tax records in selected countries show-
absolute terms than the average individual. ing that top income shares have increased
Chile exhibited a positive shared prosperity sharply in recent years. However, this type
premium in 200913. The incomes of the of evidence is not available in all countries.
bottom 40 grew an average of 1.4 percentage An increasing income share among the top
points a year more quickly than the national 1 percent is also not necessarily inconsistent
average. However, this translated into an in- with a positive Palma premium, that is, with
come gain per capita of only US$1.49 a day more rapid growth in the incomes of the
among the bottom 40, whereas the entire bottom 40 than in the incomes of the top 10.
population received an average extra income 10. World Bank (2016a).
of US$3.54 a day. Growth in Brazil and Rus- 11. World Bank (2016b).
sia followed a similar pattern. The shared 12. IMF (2015, 2016); OECD (2014); World
prosperity premium in Brazil was positive Bank (2016b).
SHARED PROSPERITY 67
Inequality 4
Inequality matters
The strong progress in poverty reduction a reduction in inequality, or a combination
and shared prosperity that took place over of the two.1 So, to achieve the same poverty
the rst decade of the 2000s is at risk be- reduction during a slowdown in growth, a
cause of the global slowdown in growth. more equal distribution is required.
Indeed, the World Bank goal of eliminating Inequality is the thematic focus of this
extreme poverty by 2030 cannot be achieved years report. Addressing inequality because
in the current global context without signif- it slows down poverty reduction implies an
icant shifts in within-country inequalities. instrumental concern for inequality, that
Poverty reduction in a country can typically is, addressing inequality is only a means to
be decomposed into higher average growth, confront another problem, namely, abso-
INEQUALITY 69
lute poverty. This report examines inequal- erty rights by the poor, and if institutions
ity because of this instrumental concern, are inequitable (disproportionally benet-
but also for intrinsic reasons. Individuals ing the wealthy through, for example, re-
express concern with rising inequality, gressive subsidies). To the extent that this
broadly dened. In fact, their perceptions of efcient redistribution breaks off the inter-
increasing inequalityeven though objec- generational reproduction of inequalities,
tive measures of inequality declinedhave it both addresses the roots and drivers of
been argued to be one of the factors con- inequality and lays out the foundations for
tributing to the Arab Spring (see box 4.2). long-term growth, which helps end pov-
Furthermore, evidence from experimental erty and expand shared prosperity. Other-
studies suggests that individuals do not act wise, societies may fall into inequality traps
exclusively in a purely self-interested man- whereby children in disadvantaged fam-
ner, but often reveal a deep-rooted con- ilies lack the same opportunities to attend
cern for fairness in outcomes.2 Leveling the good-quality schools, end up earning less in
playing eld, that is, reducing inequality of the labor market, or continue to have less
opportunity, therefore relates to notions of voice in the political process, and the cycle
fairness and justice and resonates across so- of underachievement persists.
cieties on its own merits.3 Evidence also suggests that there are
Inequality in outcomes and inequality no inevitable trade-offs between efciency
of opportunity are intimately connected.4 and equity considerations. Cross-country
While reasonable people might disagree studies of the effect of inequality on growth
over the desirable level of inequality in have failed to produce evidence that sup-
incomes or consumption expenditures or ports the existence of a trade-off in this
whether a particular increase should be of case. Rather, they point to inconclusive
concern, an important reason for caring results (box 4.1). In addition to these
about inequality in outcomes today is that macrolevel studies, analysts have also used
it leads to inequality of opportunity among microlevel evidence to examine equity-
the next generation.5 If families have vastly efciency trade-offs associated with specic
different economic resources, some children policies, where they may certainly exist. For
in some families will face an unfair start in example, taxation may create disincentives
life, and public policy will have to make a on labor supply or drive economic activity
great effort to overcome these differences in into informality. In Mexico, efciency costs
initial conditions. At the same time, reduc- in the form of lower productivity and lower
ing inequality of opportunity today reduces growth in gross domestic product (GDP),
inequality of outcomes tomorrow (see caused by high social security contribu-
chapter 6). The focus is therefore not only tions from formal employment and gener-
on preventing the transmission of poverty ous noncontributory social safety nets, are
and income disparities across generations, estimated to be on the order of 0.9 percent
but also on the transmission of unfair ad- and 1.4 percent of GDP, respectively.7 An-
vantages to the next generation. other classic example is consumer subsidies.
Furthermore, narrowing inequalityas While these subsidies are typically intended
in the case of reducing povertyis compat- to protect the consumption of the poor,
ible with boosting economic growth. World they often end up disproportionally bene-
Development Report 2006: Equity and De- ting the rich, who consume more in abso-
velopment provides a strong empirical un- lute terms than the poor. For instance, the
derpinning to the claim that interventions International Monetary Fund reports that,
that narrow inequalitywhether intended in a sample of 32 countries in the Middle
or notcan also be good for growth and East and North Africa, Sub-Saharan Africa,
long-term prosperity.6 This type of inter- and Latin America and the Caribbean, the
vention can boost economic efciency if richest 20 percent of the population cap-
markets are missing or imperfect, because tures more than six times as much of the
they fail to provide credit opportunities, benet of fuel subsidies as the poorest 20
insurance against shocks, or access to prop- percent.8
INEQUALITY 71
This focus on inequality is not meant access to contributive forms of insurance)
to question the critical role of economic as additional pillars to support the role of
growth in improving the living conditions economic growth in poverty reduction. His-
of the poor and, particularly, the bottom toric evidence conrms that countries fol-
40 percent of the income or consump- lowing such strategies have been more suc-
tion distribution (the bottom 40).9 Volu- cessful in achieving a rapid pace and wide
minous evidence conrms that commonly breadth in poverty reduction.11 Bangla-
acknowledged good macroeconomic pol- desh, Brazil, China, Ethiopia, and Vietnam
iciescontrol of ination, promotion of are some examples providing a compelling
competition policy to reduce economic illustration.12
concentration, trade openness, and macro- Empirical evidence using cross-country
economic stabilityand good governance income datathe most recent and compre-
are the foundations of sustainable growth, hensive covering 121 countries between
which, ultimately, is good for the poor and 1967 and 2011concludes that the av-
the bottom 40.10 Others have highlighted erage incomes of the bottom 40 within
the importance of investing in human de- each country tend to grow at the same
velopment (improving access, but also qual- pace as the average incomes in the respec-
ity and the institutional delivery of basic tive country.13 Figure 4.1 illustrates this
services) and insuring against risks (espe- empirical nding with the most recently
cially among the poor and those without available data. Countries in which growth
at the mean is large also show the largest
growth in the incomes of the bottom 40.
FIGURE 4.1 Growth of the Bottom 40 versus Growth at the Mean, Conversely, countries with negative growth
200813 rates in the mean also show declines in the
10 incomes of the bottom 40. Consistent with
CHN ZAR these two ndings, evidence suggests that
ECU BLR average income growth appears uncor-
KHM related with changes in the share of the in-
Annual growth in the mean of the bottom 40 (%)
PER BOL
MKD BRA RUS SVK comes of the bottom 40. Between 1967 and
5
VNM 2011, the average income growth in coun-
IRN TZA COG tries was 1.5 percent a year during a typical
ve-year period, while changes in the share
LAO CMR
of incomes of the bottom 40 were close to
0 zero. As a result, some estimates suggest that
GBR DNK
ESP average income growth explains as much
LVA as three-quarters of the variation in in-
ITA come growth of the bottom 40.14 As coun-
IRL
5 tries grow more quickly, the growth of the
bottom 40 may be expected to increase as
well. Thus, growing the economy, boosting
shared prosperity, and reducing poverty are
10 GRC three absolutely compatible goals.15
Although economic growth is essen-
10 5 0 5 10 tial in sustaining improvements in living
Annual growth in the mean (%) standards at the low end of the income
distribution, growth alone typically falls
Source: Calculations based on household survey data in GDSP (Global Database of Shared Prosperity),
World Bank, Washington, DC, http://www.worldbank.org/en/topic/poverty/brief/global-database-of short of delivering the maximum sharing
-shared-prosperity. of prosperity. In the empirical evidence
Note: The gure shows annualized growth rates in per capita household income or consumption expendi- cited above, a quarter of the variation in
tures over circa 200813. The red line is a 45-degree line, that is, in economies along this line, the bottom
40 grew at the same rate as the total population. The bottom 40 in economies below the line experienced the growth of the incomes of the bottom
slower growth relative to the overall population. 40 across countries derives from sources
BOX 4.2 Perceptions of Inequality in the Middle East and North Africa
Inequality is a multifaceted Inequality in the Middle East steady progress in the equitable
phenomenon; yet, discussions and North Africa region presents distribution of the gains from
about it are often restricted to an illustrative case of marked economic growth.b Low by
income-wealth-consumption differences between subjective comparison with other developing
metrics.a Increasingly, however, assessments and objective regions, the population share of
evidence from the eld on measures. These differences help the extreme poor had declined
subjective well-being has explain the conditions leading to further in almost all countries.c In
demonstrated the importance the Arab Spring in early 2011 that the early 2000s, income inequality
of individual perceptions in the traditional metrics of income or was also moderately low in
analysis of inequality, for example, wealth inequality failed to capture. comparison with other developing
on satisfaction with basic services, From 1950 through the 1990s, regions. The region achieved the
governance, or economic mobility. countries in the region had made Millennium Development Goals in
INEQUALITY 73
BOX 4.2 Perceptions of Inequality in the Middle East and North Africa (continued)
poverty reduction and access to FIGURE B4.2.1 Actual versus Anticipated Feelings of Well-Being,
infrastructure services (especially Middle East and North Africa
Internet connectivity and drinking
water and sanitation), and was also 8
successful in reducing hunger and
child and maternal mortality and in
raising school enrollments.d
societies differ in who they regard genuinely regard such disparities distribution of prosperity.m The
as a reference group, and this as the result of fair returns within combination of shifting attitudes
leads to differences in subjective a meritocratic system, whereas and growing frustration because of
evaluation. In addition, people other societies consider the long-run unmet expectations may
tend to misstate their own income same income disparities as constitute a serious threat to social
and wealth.k Moreover, different unacceptable.l The Arab Spring and political stability, especially
societies view the signicance demonstrates that attitudes toward if macroeconomic growth is
of relative inequality differently. historical norms can change if a perceived to have no benets for
Some countries are more tolerant broadening share of a population low- and middle-income population
of greater income disparities if they yearns for a more equitable groups.
Sources: Arampatzi et al. 2015; Chattopadhyay and Graham 2015; Gallup 2011b; Gallup World Poll, Gallup, Washington, DC, http://
www.gallup.com/services/170945/world-poll.aspx; Graham 2016; Graham and Lora 2009; Hassine 2015; Iqbal and Kiendrebeogo
2014; Khouri and Myers 2015; Ncube and Hausken 2013; Verme et al. 2014; World Bank 2015, 2016a.
a. World Bank (2016a).
b. Hassine (2015); Ncube, Anyanwu, and Hausken (2013).
c. World Bank (2015).
d. Iqbal and Kiendrebeogo (2014).
e. Arampatzi et al. (2015); Chattopadhyay and Graham (2015); Khouri and Myers (2015).
f. Life satisfaction is often measured using the Cantril ladder of life metric (Cantril 1965).
g. Graham and Lora (2009) coined the phrase unhappy growth paradox as a reection of the declines in life satisfaction during
periods of rapid economic growth that also results in drastic upheaval in old social and economic norms, while the new ones that
replace them take time to stabilize. This pattern was evident in transition economies of Eastern Europe in the 1990s and, more
recently, in China and India.
h. Gallup (2011b).
i. Gallup (2011b).
j. Verme et al. (2014), using data in WVS (World Values Survey) (database), Kings College, Old Aberdeen, United Kingdom,
http://www.worldvaluessurvey.org/wvs.jsp. See also Arab Barometer Public Opinion Survey Series (database), Inter-university
Consortium for Political and Social Research, Institute for Social Research, University of Michigan, Ann Arbor, MI, http://www
.icpsr.umich.edu/icpsrweb/ICPSR/series/508.
k. van der Weide, Lakner, and Ianchovichina (2016).
l. Arampatzi et al. (2015); Chattopadhyay and Graham (2015).
m. Arampatzi et al. (2015) using 201214 data in Arab Barometer Public Opinion Survey Series (database), Inter-university
Consortium for Political and Social Research, Institute for Social Research, University of Michigan, Ann Arbor, MI, http://www
.icpsr.umich.edu/icpsrweb/ICPSR/series/508.
experience of Brazil and the Arab Spring Separating fact from myth:
indicate (box 4.2). Overall, however, threats
what is the evidence on
to achieving the World Bank goals arising
from extremism, political turmoil, and in-
inequality?
stitutional fragility are less likely in more Reductions in inequality are important in-
cohesive societies. In contrast, political in- trinsically and because they are associated
stability is more likely to emerge and more with reductions in absolute poverty and
difcult to eradicate in societies where greater sharing of prosperity. There are
economic growth and social policies have also a lot of misconceptions about recent
reduced poverty without addressing inter- changes in inequality. Some narratives sug-
personal and regional disparities, whether gest there has been an unrelenting increase
objectively measured or subjectively per- in inequality worldwide. Many will be fa-
ceived. It is worth recalling that the Arab miliar with the evidence on top incomes
Spring began in Tunisia, a country with a rising more quickly than average incomes in
long and strong record of economic growth a number of countries.19 Figure 4.2, panel a,
and poverty reduction, but also with per- shows that the income share of the richest 1
vasive regional disparities and a history of percent in the United States has been rising
cronyism and corruption.18 steeply since the 1970s, after falling in the
INEQUALITY 75
FIGURE 4.2 The Top 1 Percent Income Share, Selected Economies
a. Industralized economies since 1900 b. Developing economies since 1980
20 20
10 10
5 5
1900 1925 1950 1975 2000 2015 1980 1990 2000 2010 2013
United States Japan France South Africa Argentina India
Korea, Rep. Taiwan, China
Source: Calculations based on data of WID (World Wealth and Income Database), Paris School of Economics, Paris, http://www
.parisschoolofeconomics.eu/en/research/the-world-wealth-income-database/.
Note: The gure shows the share of national income (excluding capital gains) going to the richest 1 percent of national populations.
These measures are typically derived from tax record data. For South Africa, the gure shows the top 1 percent income share
among adults.
rst half of the 20th century. In contrast, in FIGURE 4.3 Global Income Inequality,
France and Japan, not only do the richest 18202010
control a much smaller share of national
income, but their share has also risen much
less. This is remarkable because all three 70
countries had similar top income shares
at the beginning of the 20th century. The 60
long-run evidence on developing countries
Gini index
45
of scale in larger households). The analysis is
conducted in two stages. First, estimates are
40 reported for interpersonal global inequality.
Second, the focus shifts to inequality within
35 countries. Only relative measures of inequal-
ity, typically the Gini index, are considered.24
30
This is only one perspective on inequal-
ity. Other dimensions are no less important
1980 1990 2000 2010 2014
and may be trending in different directions.
Argentina Indonesia
China India
Thus, peoples perceptions about inequality
may be different from actual trends (see box
Sources: World Bank 2016b; PovcalNet (online analysis tool), 4.2). People might care about wealth in-
World Bank, Washington, DC, http://iresearch.worldbank.org
/PovcalNet/.
equality, inequalities in access to basic ser-
Note: The welfare aggregate in Argentina is income; in all other vices, or the inequality between urban and
countries it is consumption. rural areas or across geographical regions.
Furthermore, all the standard inequality
measures used here are relative, but peo-
Gini index of Argentina, China, India, and ple may be concerned with absolute differ-
Indonesia, on which longer-run data are ences (box 4.3). While the results here are
available. In Argentina and China, inequality compared with alternative datasets, such
widened appreciably until the early 2000s, comparisons are difcult because inequal-
while the rise in Indonesia began around ity measures may be different, for example,
the same time. The increase in inequality in after the application of equivalence scales or
India has been more muted and began in the the use of households instead of individu-
second half of the 2000s. In contrast, during als as the unit of analysis.25 For instance, in
the 2000s, inequality narrowed sharply in Argentina, the use of equivalence scales
Argentina and in some other Latin American adjusting consumption by size and age
countries.20 The drop was so pronounced reduces the Gini index from 41.9 to 39.4,
that the inequality levels in Argentina and compared with the per capita estimates.26
China became comparable.21 Inequality has There are several reasons for interpreting
been stabilizing in China and, to some ex- these results carefully.27 First, as with any
tent, in Indonesia in recent years, though at a global analysis, the data coverage of coun-
much higher level than 20 years ago. tries is incomplete. Despite considerable
Against the context of these long-run de- progress, good-quality data are still missing
velopments, the remainder of this chapter in various countries. These include many
analyzes recent changes in inequality more fragile countries, as well as some countries
systematically. In this report, inequality in in the Middle East, the African continent,
disposable income or consumption expen- the Caribbean, and the Pacic. Annex 4A de-
diture is measured among individuals.22 scribes the countries included in the analysis
Disposable income is dened as net market and their shares in regional populations. For
income (that is, after personal income taxes example, in 2013, the data covered about a
and social security contributions have been third of the population in the Middle East
deducted), plus any direct social transfers. and North Africa region and around half the
Other outcome measures, whether monetary population in Sub-Saharan Africa.
INEQUALITY 77
BOX 4.3 Absolute versus Relative Inequality
Standard measures of inequality, unchanged. This may be associated result, the Gini index fell from 50.2
such as the Gini index, are relative. with quite different absolute to 42.3. In Uganda, consumption
Relative measures of inequality gains, however, depending on the among the bottom nine deciles
obey the scale invariance axiom, dispersion in incomes in the initial grew at almost the same rate,
which says that an inequality distribution. while the consumption of the top
measure ought to remain The red lines in gure B4.3.1 decile grew more slowly. Thus, the
unchanged in the face of any show how average incomes or Gini index fell from 45.2 to 42.4.
transformation that multiplies all consumption of deciles have grown The blue lines in the two panels
incomes by the same constant, in Argentina (panel a) and Uganda show the absolute annual gains by
such as a simple rescaling from (panel b) over the past 10 years. decile. In absolute terms, the richer
euros to U.S. dollars. This implies In Argentina, incomes have grown deciles gained much more over the
that, if all incomes grow at the much more quickly among the period, reversing the conclusions
same rate, the Gini index remains poor than among the rich. As a based on relative gains.
FIGURE B4.3.1 Comparing Absolute and Relative Gains across the Distribution
a. Argentina (200413) b. Uganda (200212)
12 600 5 140
10 500 120
Annualized growth rate (%)
4
Annualized growth rate (%)
100
8 400
3 80
6 300
2 60
4 200
40
1
2 100 20
0 0 0 0
1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10
Decile Decile
Growth Absolute gain
Source: PovcalNet (online analysis tool), World Bank, Washington, DC, http://iresearch.worldbank.org/PovcalNet/.
Note: The welfare aggregate in Argentina is income, while consumption expenditure is used in Uganda. According to Beegle et al. (2016), the spell used for
Uganda is based on two comparable surveys. The red line is a variant of the growth incidence curve showing annualized growth rates of average income or
consumption by decile group. The blue line shows absolute gains per year in 2011 PPP U.S. dollars.
Relative measures of inequality income gaps often carry absolute caring about relative measures and
are conceptually appealing connotations. Thus, in experimental caring about absolute measures.a
because, for instance, they allow studies, university students An analysis of absolute differences
inequality and economic growth to in Germany, Israel, the United can, in any case, provide a
be analyzed separately. However, Kingdom, and the United States are complementary perspective.b
perceptions about widening approximately evenly split between
a. Ravallion (2016).
b. For instance, Atkinson and Brandolini (2010) argue that global inequality analyses in particular need to consider both absolute
and relative differences.
Second, for the sake of consistency, the shared prosperity, respectively. This means
analysis relies on the same welfare aggre- that the analysis tends to use consumption
gate to measure inequality that is used in expenditure for most developing countries
chapters 2 and 3 to estimate poverty and and income for the industrialized countries
In a number of countries in income-based Gini indexes. But shared prosperity spells introduced
Eastern Europe and Central Asia, rankings remain somewhat similar. in chapter 3 (from around 2008 to
both income- and consumption- For example, Georgia and Turkey 2013), the gure plots the change
based Gini indexes are available for are the two most unequal countries in the Gini index for the two
the same years. Figure B4.4.1 plots in the sample, but Poland moves up welfare aggregates. While there are
the income Gini (left axis) against from rank 8 to rank 3 if consumption some large differences (notably,
the consumption Gini (right axis) is used instead of income. Romania), both welfare aggregates
for all the countries where such a Figure B4.4.2 addresses the point in the same direction, and
comparison is possible for 2013. It issue of whether inequality trends one aggregate does not produce a
is clear that consumption-based Gini are different if consumption is used consistently smaller change than
indexes are considerably lower than instead of income. For the set of the other.
FIGURE B4.4.1 Levels of Income and Consumption, FIGURE B4.4.2 Trends in Income and
Gini Indexes, 2013 Consumption, Gini Indexes, Circa 200813
45 45
Albania
Georgia
Turkey
Armenia
Armenia
Romania
Serbia Kyrgyz Republic
Poland Moldova
34 34 Romania
Poland Serbia
Armenia
30 30 Turkey
Kazakhstan Serbia
Kyrgyz Republic
Moldova
Romania 6 4 2 0 2
Belarus Change in Gini index
26 Kazakhstan
Ukraine 25 Change in incomebased Gini
Belarus Ukraine Change in consumptionbased Gini
Source: Calculations based on data from the ECAPOV database harmonization as of April 2016, Europe and Central Asia Team for Statistical
Development, World Bank, Washington, DC.
Note: In Poland and Romania, the World Bank uses income surveys for poverty monitoring. All other countries in the two figures use consumption
expenditure.
and for Latin America.28 Given that the Europe and Central Asia, where it is possi-
marginal propensity to consume declines ble to measure Gini indexes for both welfare
with income, or that savings increase with aggregates in the same year. The ranking of
income, consumption expenditure tends to countries by the Gini index is somewhat
be more equally distributed than income. robust to whether consumption or income
Compared with an analysis using income is used, although there are some notable
distributions exclusively, the data presented exceptions. However, this only considers
here would therefore systematically under- the ranking within a region, not across the
state inequality in some countries. While world, and it is not obvious that this rela-
this is a serious issue, an income distribu- tionship would also hold in other regions.
tion cannot be inferred reliably from an ex- It is important to keep this in mind when
penditure distribution.29 comparing inequality levels between, for
Box 4.4 assesses the effects of using in- example, Latin America and the Caribbean
come or consumption surveys in Eastern (mostly income surveys) and Sub-Saharan
INEQUALITY 79
Africa (mostly consumption surveys). Box at the top).30 Finally, consumption surveys
4.4 also shows that time trends are similar tend to understate true living standards at
between the two welfare aggregates. the top because consumption declines with
A third reason for caution is that the cov- income or because expenditure on durables
erage of household surveys within countries (which are more important at the top) is
is also typically incomplete at the top tail. poorly measured.31
While this is not an issue in measuring pov- Thus, it is likely that the household sur-
erty, it is important in measuring inequality veys used in this chapter understate the
accurately (see chapter 1), as well as in other level of inequality. While the evidence from
areas of public policy such as scal policy. administrative records remains seriously
Survey enumerators typically face difcul- limited in developing countries, comple-
ties interviewing the richest households, mentary evidence suggests that top in-
and, if they do conduct interviews, the rich comes might have been rising more quickly.
may understate their incomes. Furthermore, Household surveys may therefore also un-
the coverage of the income surveys that are derestimate the trend in inequality. For ex-
used for some emerging economies is in- ample, the labor share has been declining in
complete in terms of entrepreneurial and many countries, while billionaire wealth on
capital incomes (important income sources rich lists has been growing rapidly.32 Box 4.5
Gini index
incomplete taxation of capital incomes.
24 54
Figure B4.5.1 compares the income
share of the top 1 percent and the Gini
index of Brazil between 2006 and 2012.
22 52
While the Gini index has been falling
steadily over this period, by almost 4
Gini points, the top income share has 20 50
been on an upward trend. Part of this 2006 2007 2008 2009 2010 2011 2012
divergence may derive from denitional
Top 1 percent
differences, such as the use of tax units Gini index (right axis)
versus households or of gross incomes
versus disposable incomes. However, Source: World Bank compilation based on Souza, Medeiros,
and Castro 2015; PovcalNet (online analysis tool), World
this evidence may also suggest that the
Bank, Washington, DC, http://iresearch
Gini index misses important changes in .worldbank.org/PovcalNet/.
the top tail; particularly that top incomes Note: The red line shows the trend in the income share
have grown more quickly than mean of the top 1 percent of individuals from tax record data.
incomes. The two data series rely on different units of analysis (tax
units versus households) and different welfare aggregates
(disposable versus taxable gross income).
a. Thanks to the pioneering work of Alvaredo et al. (2013). See WID (World Wealth and Income
Database), Paris School of Economics, Paris, http://www.parisschoolofeconomics.eu/en/research
/the-world-wealth-income-database/.
Gini index
0.6
65
Global inequality 50
0.4
However imperfect, this compilation of
household surveys remains the only source
0.2 40
of distributional statistics on a large set of
countries. Global inequality, dened here as 20 24 26 28 30 35
the inequality in income among all persons 0 30
in the world irrespective of their country of 1988 1993 1998 2003 2008 2013
residence, is an aspect of inequality that is Within-country inequality Gini index (right axis)
often overlooked in discussions that focus Between-country inequality
on country-specic inequality.34 During a
Sources: Lakner and Milanovic 2016a; Milanovic 2016; calculations based on PovcalNet (online analysis
period of rapidly increasing global integra- tool), World Bank, Washington, DC, http://iresearch.worldbank.org/PovcalNet/.
tion, some of the poorest economies were Note: For each country, household income or consumption per capita is obtained from household surveys
and expressed in 2011 PPP exchange rates. Each country distribution is represented by 10 decile groups.
growing rapidly, thus raising average living
The line (measured on the right axis) shows the level of the global Gini index. The height of the
standards, but many of the same coun- bars indicates the level of global inequality as measured by GE(0) (the mean log deviation). The red
tries also experienced increasing inequality bars show the corresponding level of population-weighted inequality within countries. The level of
between-country inequality, which captures differences in average income across countries, is shown
within their borders. Global inequality cap-
by the yellow bars. The numbers in the bars refer to the relative contributions (in percent) of these two
tures the overall effect of both forces. sources to total global inequality.
Global inequality has diminished for the
rst time since the industrial revolution. The
global Gini index rose steadily by around 15 is to decompose global inequality into dif-
Gini points between the 1820s and the early ferences within and between countries. This
1990s, but has declined since then (see g- allows an understanding of how much of
ure 4.3).35 While the various methodologies the change in global inequality is explained
and inequality measures show disagreement by countries reducing the inequality among
over the precise timing and magnitude of them (that is, reducing the differences in
the decline, the decline since the middle of average incomes across countries) relative
the last decade is conrmed across multiple to the reduction in inequality within each
sources and appears robust.36 The estimates one of the countries (that is, the differences
presented in gure 4.5 show a narrowing in in incomes within a country). This decom-
global inequality between 1988 and 2013. position is shown by the bars in gure 4.5.
The Gini index of the global distribution The total height of the bars captures global
(represented by the blue line) fell from 69.7 inequality as measured by GE(0) (the mean
in 1988 to 62.5 in 2013, most markedly since log deviation), while the red and yellow bars
2008 (when the global Gini index was 66.8). show the within and between contribu-
Additional exercises conrm that these re- tions, respectively. In contrast to the Gini,
sults are reasonably robust, despite the er- GE(0) is a bottom-sensitive inequality mea-
rors to which the data are typically subject.37 sure that can be additively decomposed into
Global inequality is at a much higher within- and between-country components.
level than inequality within countries. Few This decomposability feature makes this in-
countries have Gini indexes above 60 (see dicator appealing for this type of analysis.
below). This is not surprising given that Between two-thirds and four-fths of
the global distribution includes everyone global inequality stems from differences in
from the poorest Congolese to the richest average incomes across countries (between-
Norwegian. Another way to illustrate this country inequality). The reduction in over-
INEQUALITY 81
all global inequality was mostly driven by pened to average within-country inequality
a decline in this component, that is, aver- in the world. Whatever the approach, aver-
age incomes converged across countries.38 age inequality within countries increased
This reects the rapid growth in aver- in the 1990s, but has been falling in recent
age incomes in populous countries such years according to most specications.
as China and India. These developments The population-weighted average Gini
were counteracted to some extent by an (solid blue line in gure 4.6) captures the
increase in within-country inequality, espe- change in within-country inequality for the
cially in the 1990s. Between 2008 and 2013, average person in the world. Therefore, the
within-country inequality stabilized or even individual remains the unit of analysis as in
declined slightly, which, together with the the global inequality analysis (see above).42
strong convergence effect, led to a marked The population-weighted average Gini rose
decline in global inequality. As a result of sharply between 1988 and 1998, by some
these developments, within-country differ- 6 points, from 34 to 40. Over this period,
ences explain an increasing share of global the average person in the world was thus
inequality, as shown in gure 4.5. living in a country in which inequality was
A mixed picture emerges if one exam- growing steeply. Since then, inequality has
ines the separate regional distributions. declined slightly, by almost one point, but
Inequality increased within most regions, remains at a higher level than 25 years ago.
with the notable exception of Latin America Next, the analysis presents unweighted
and the Caribbean. For instance, inequal- averages. These averages allow us to cap-
ity among all Sub-Saharan Africans rose ture how different countries have fared over
between 1993 and 2008, driven by widen- time in terms of reducing inequality, thus
ing between-country inequality, although learning from their successes (see chapter
within-country differences remain the 5 for a discussion of a few selected country
dominant source (around 60 percent).39 In cases). Thus, this part of the analysis treats
contrast, growing regional inequality within China and Honduras the same in calculat-
East Asia and Pacic was driven by rising ing the average, regardless of the fact that
within-country inequality.40 This also im- the population of China is much larger
plies that most of the convergence observed than the population of Honduras. As shown
at the global level has been between regions. by the solid red line in gure 4.6, the un-
weighted average Gini index also increased
during the 1990s, but by a smaller amount.
Within-country inequality
The simple average worldwide increased by
Most studies of inequality focus on within- around 5 points, from 36 in 1988 to 41 ten
country inequality, which remains the years later, and declined thereafter, reaching
level at which most policies operate. Our 38 in 2013.43
analysis of within-country inequality, the Because not every country conducts
most comprehensive among recent stud- a household survey every ve years, the
ies, covers all available countries regardless country composition changes across these
of region or income level, as compiled in ve-year periods. To avoid such composi-
PovcalNet.41 Described in more detail in the tional shifts, inequality trends are studied
annex to this chapter, the analysis denes for a smaller sample of countries that have
six benchmark years (in ve-year intervals household surveys in each of the ve-year
between 1988 and 2013) to which country- periods considered. The dashed lines in g-
year observations within a two-year win- ure 4.6 repeat the unweighted and weighted
dow on either side are grouped. This al- averages, but include the same set of 41
lows a more meaningful comparison across countries throughout the period.44 The
countries over time, because many coun- average inequality in this set of countries
tries lack data for every year. On average, follows a similar trend. Taken together, the
there are 109 countries per benchmark year analysis suggests that, in the average coun-
(table 4A.2 in the annex). Figure 4.6 offers try, inequality may have peaked in the late
four ways of summarizing what has hap- 1990s and early half of the 2000s and has
INEQUALITY 83
FIGURE 4.8 The Gini Index, 101 Countries, 2013 a region may exhibit distinctive trends
Ukraine
and specic drivers behind the trends. In-
Slovenia + Consumption survey stead of providing a simplistic explana-
Norway
Income survey
Slovak Republic
Czech Republic
+
. tion, it is more useful to look closely at the
Kazakhstan
Average Gini for all countries
Belarus . country variations within regions and to
Kosovo
Iceland understand how the common drivers of
Finland
Sweden . inequalitysuch as gaps in human capi-
Belgium
Netherlands tal accumulation, differences in access to
Moldova
Kyrgyz Republic jobs and income-generating opportunities,
Albania
Serbia
Denmark
.
+
and government interventions to address
Germany
Iraq .
market-based inequalities such as taxes and
Tajikistan
Austria .
transfersare relevant in each country. The
Hungary +
Pakistan remainder of this chapter looks at the vari-
Cambodia
Armenia + ations in within-country inequality in each
Switzerland
Mongolia region, while chapter 5 focuses on selected
Montenegro .
Mauritania countries that have successfully reduced in-
Croatia .
Ireland . equality, and chapter 6 centers on specic
United Kingdom
Poland
France
.
interventions that have been shown to re-
Estonia
Ethiopia
+ duce inequality and poverty without major
Guinea
Bosnia and Herzegovina
efciency and equity trade-offs in several
Niger countries around the world.
Sierra Leone
Cyprus +
Luxembourg + The bars in gure 4.8 show the level of
Romania
Lithuania . the Gini index across the 101 countries
Italy +
India on which data are available for 2013. The
Burkina Faso
Latvia gure highlights whether a country uses
Mauritius .
Spain + income or consumption expenditure, con-
Bulgaria .
Portugal
Greece
.
+
rming that most of the high-inequality
Iran, Islamic Rep.
Vietnam
countries use income surveys. The most
Tanzania
Thailand
unequal country in the world is South Af-
Lao PDR +
Bhutan . rica, followed by Haiti, each of which has
Sri Lanka
Indonesia a Gini index in excess of 60. Another Sub-
Georgia
Turkey + Saharan African country (Rwanda) and
Senegal +
Uganda seven other Latin America and Caribbean
United States .
Russian Federation . countries (Brazil, Chile, Colombia, Costa
Uruguay
Congo, Dem. Rep.
China .
Rica, Honduras, Mexico, and Panama)
Argentina
Micronesia, Fed. Sts.
make up the top 10 most unequal countries
Madagascar
Philippines
in the world. All the most equal countries
Zimbabwe
Chad are in the group of industrialized countries
Benin
El Salvador or in Eastern Europe and Central Asia.
Djibouti
Peru More broadly, all Latin America and
Togo +
Cameroon + Caribbean countries have Gini indexes in
Seychelles
Nicaragua + excess of 40, and the Gini in a third of those
Dominican Republic
Ecuador
Bolivia
countries is above 50 (gure 4.9). There is
Paraguay
Guatemala
+
almost no overlap between Latin Amer-
Congo, Rep.
Mexico +
ica and the Caribbean and the two other
Costa Rica
Rwanda
.
. regions that primarily use income sur-
Chile
Panama veys, namely, the industrialized countries
Brazil
Colombia and Eastern Europe and Central Asia. The
Honduras .
Haiti other region that exhibits high inequality
South Africa
is Sub-Saharan Africa, especially the south-
20 30 40 50 60 ern countries.52 More than half the African
Gini index countries in the sample have Gini indexes in
Source: World Bank calculations based on data in Milanovic 2014; PovcalNet (online analysis tool), World excess of 40. The reported measures of in-
Bank, Washington, DC, http://iresearch.worldbank.org/PovcalNet/ (see annex 4A).
Note: Countries are sorted by the Gini index. The red line shows the unweighted average Gini index
in 2013. + = increase in the Gini > 1 Gini point, 200813. = decline in the Gini > 1 Gini point.
. = change in the Gini within 1 Gini point. See the detailed discussion in the text around table 4.1.
equality in Sub-Saharan Africa use predom- FIGURE 4.9 Distribution of the Gini Index, 2013
inantly consumption expenditure; income-
based inequality statistics would likely be East Asia and Pacic 9 surveys
higher.
Eastern Europe and Central Asia 26 surveys
Short- and long-run trends in
Latin America and the Caribbean 18 surveys
within-country inequality
Results based on an analysis of trends are Middle East and North Africa 3 surveys
often sensitive to the beginning and end
points. The trends chosen in this chapter South Asia 4 surveys
begin around 1993 given the limited data
availability in the developing world (espe- Sub-Saharan Africa 21 surveys
cially Africa) before that year. This choice
might underestimate the rise in inequal- Industrialized countries 20 surveys
ity. For example, the surge in inequality in
many Eastern European countries follow- World 101 surveys
ing the fall of the Berlin Wall had already
occurred. During the 1980s, inequality rose 0 20 40 60 80 100
steeply in some rich countries, such as the Percent
Netherlands, the United Kingdom, and the Gini below 30 Gini between 40 and 50
United States.53 For these reasons, two sets Gini between 30 and 40 Gini above 50
of country-level spells are analyzed (as dis-
cussed in annex 4A). First, the long-run Source: World Bank calculations based on data in Milanovic 2014; PovcalNet (online analysis tool), World
Bank, Washington, DC, http://iresearch.worldbank.org/PovcalNet/ (see annex 4A).
spells include all countries that have an ob- Note: The gure shows that 2013 data were available on 101 countries. Of these, 8 had a Gini index
servation around 1993 and 2008, as long as exceeding 50; 6 were in Latin America and the Caribbean, and 2 in Sub-Saharan Africa. Some 31 had a
the welfare aggregate (income or consump- Gini index between 40 and 50: 12 in Latin America and the Caribbean, 11 in Sub-Saharan Africa, 3 each
in East Asia and Pacic and Eastern Europe and Central Asia, and 1 each in the Middle East and North
tion) is the same. Second, the sample of Africa and in the industrialized countries. Some 43 countries had a Gini index between 30 and 40: 12 each
short-run trends from 2008 to 2013 is based in Eastern Europe and Central Asia and in the industrialized countries, 8 in Sub-Saharan Africa, 6 in East
on the strictly comparable shared prosperity Asia and Pacic, 4 in South Asia, and 1 in the Middle East and North Africa. Some 19 countries had a
Gini index below 30: 11 in Eastern Europe and Central Asia, 7 in the industrialized countries, and 1 in the
spells used in chapter 3. Comparisons need Middle East and North Africa.
to be drawn carefully because the regional
composition of the two sets of spells is dif-
ferent. Thus, the set of short-run spells in- smaller) sample of countries. The majority
cludes fewer countries, especially in South of countries appear to fall below the line,
Asia and Sub-Saharan Africa. This reects that is, they show a declining Gini index, and
issues of data comparability and availability, the decline in Latin America and the Ca-
which are discussed in detail in a recent re- ribbean appears even more pronounced. A
port on Sub-Saharan Africa.54 few country examples are highlighted in
Figure 4.10 plots the nal year against gure 4.10, panel b, indicating that decreases
initial year Gini indexes for the long-run in inequality have been observed across all
(panel a) and short-run (panel b) spells. levels of inequality (high and low), income
Countries above the line experienced in- groups (low- and middle-income catego-
creasing inequality, whereas countries below ries), and regions.
the line saw a decline. Between 1993 and Table 4.1 summarizes within-country
2008, large falls are observed. This might trends in inequality by region more system-
indicate successful reductions in inequality, atically. The sample in the 15 years between
but also some problems with survey com- 1993 and 2008 includes 91 countries, 42 of
parability, especially in Sub-Saharan Africa. which showed increasing inequality; 39 had
The other major region with declining in- a declining Gini index; and 10 showed no
equality appears to have been Latin America signicant changes, that is, changes below 1
and the Caribbean. The changes between Gini point in either direction.55 Hence, the
2008 and 2013 were smaller for the (also number of countries with rising inequality
INEQUALITY 85
FIGURE 4.10 Trends in the Within-Country Gini Index, 19932013
a. 19932008 b. 200813
70 70
ZAF ZAF
60 60
COL
BRA
20 30 40 50 60 70 20 30 40 50 60 70
Gini index (around 1993) Gini index (around 2008)
East Asia and Pacic Latin America and the Caribbean South Asia Industrialized countries
Eastern Europe and Central Asia Middle East and North Africa Sub-Saharan Africa
Source: Calculations based on data in Milanovic 2014; PovcalNet (online analysis tool), World Bank, Washington, DC, http://iresearch.worldbank.org/PovcalNet/ (see annex 4A).
Note: Economies along the red (45-degree) line experienced no change in inequality. In economies below (above) the line, inequality narrowed (widened).
TABLE 4.1 Countries with an Increasing or Decreasing Gini Index and the Average Gini
Number
Long-run trend (19932008) Short-run trend (200813)
Number of countries: Mean Gini Number of countries: Mean Gini
+/ pp Total 1993 2008 +/ pp Total 2008 2013
East Asia and Pacic 5 1 3 9 37.8 39.1 1 1 5 7 39.2 37.3
Eastern Europe and Central Asia 5 2 6 13 33.9 32.5 6 8 9 23 31.9 31.4
Latin America and the Caribbean 8 0 11 19 49.0 47.0 3 2 12 17 49.7 48.0
Middle East and North Africa 1 1 3 5 39.8 36.4 0 1 1 2 35.3 33.4
South Asia 3 0 1 4 31.0 34.5 0 1 2 3 36.7 36.2
Sub-Saharan Africa 8 2 10 20 47.6 45.1 3 2 4 9 44.1 43.8
Industrialized countries 12 4 5 21 31.4 32.6 6 6 8 20 32.0 31.8
World 42 10 39 91 40.1 39.3 19 21 41 81 37.9 37.1
Source: World Bank calculations based on data in Milanovic 2014; PovcalNet (online analysis tool), World Bank, Washington, DC, http://iresearch.worldbank.org/PovcalNet/
(see annex 4A).
Note: Increases and decreases refer to changes that are greater than 1 Gini point in absolute value. The unweighted average Gini index is estimated over the sample of 91
countries (left panel) and 81 countries (right panel).
was slightly higher than the number of coun- (thus, barely signicant). This is because,
tries with falling inequality. Yet, the average among countries with narrowing inequality,
Gini among these 91 countries actually de- the Gini index fell by a larger amount than
clined by 0.8 Gini points, from 40.1 to 39.3 it increased in the rising countries. However,
INEQUALITY 87
which evidence is availableonly started to ects a larger decline in the incomes of the
narrow in the last decade, after peaking in bottom 40 than the expected decline in the
the 1990s. Inequality remains unacceptably average incomes of the entire population,
high in many countries around the world. a consistent result across several scenarios
Developing countries tend to exhibit higher of climate change projections, economic
levels of inequality than developed coun- growth, and adoption of adaptive policy
tries. Latin America and the Caribbean, interventions.58 This is because this group
along with Sub-Saharan Africa, stand out as has lower-quality assets, less access to pro-
historically high-inequality regions. But it is tection mechanisms, and is more vulnerable
precisely the Latin American region that has to the negative effects of climate change on
been more successful in reducing inequality agricultural productivity, weather shocks,
than any other region. food prices, and diseases. Finally, signs of
Another critical nding of the country a backlash against the free movement of
analysis is that, for every country in which goods, people, and ideas have emerged in
inequality widened by more than 1 Gini a number of countries. Even though it is
point (19 of 81 countries) in recent years, entirely speculative, such a backlash could
it narrowed in more than two countries by hurt the poor if it were to reverse the in-
over 1 point (41 out of 81 countries). More equality reductions observed since 2008 at
than a third of the population in the sample a global level. While globalization has cer-
were living in a country in which the Gini tainly produced both winners and losers, it
had fallen by more than 1 point. is highly unlikely that undoing it will lead
While this is good news, overoptimism is to sustaining or increasing the pace of the
out of place. There should be no presump- recent reduction in global inequality into
tion that these favorable and exceptional the long run.
recent trends will continue. The growth Beyond global processes, a countrys in-
slowdown in developing and emerging come inequality is also a choice. Domestic
economies, if it becomes protracted, is policy choices explain, to a large extent, re-
likely to delay further reductions in global cent within-country inequality reductions,
inequality. Closely related is the secular often combining solid macroeconomic
decline in commodity prices. (The earlier management with coherent sectoral policies.
boom in commodity prices had funded (Chapter 5 examines the policy choices that
many equity-enhancing public investments have led to a reduction in inequality and an
within countries.) Climate change is pro- expansion in shared prosperity in selected
jected to have signicant negative distribu- countries. Chapter 6 assesses specic policy
tional as well as poverty effects both globally interventions that have had a demonstrated
and within countries. A recent analysis proj- effect in reducing inequalities.)
Data construction
Global inequality database The regions with the lowest coverage are the
Middle East and North Africa, Sub-Saharan
The estimates of global interpersonal in- Africa, and Other Asia. This is relevant be-
equality (see gure 4.5) are primarily based cause changes in the sample composition
on Lakner and Milanovic (2016a), who could have important effects on the level of
cover the period 1988 to 2008. Here, their global inequality. However, the decline in
data have been converted into 2011 pur- global inequality between 2008 and 2013 is
chasing power parity (PPP) exchange rates, robust to a number of modications, such
and their estimates have been updated to as using a balanced sample of countries
2013 using data from PovcalNet and Mi- throughout.
lanovic (2016). The data update is con-
structed in exactly the same way as the Lak-
Database of within-country
ner and Milanovic (2016a) dataset: surveys
need to be within two years of a benchmark Gini indexes
year; consecutive surveys need to be at least The primary source of the country-level
three and no more than seven years apart; Gini data is the October 2016 release of
and the welfare aggregate (income or con- PovcalNet.60 For most countries, PovcalNet
sumption expenditure) must remain the computes these statistics directly from mi-
same for a country over time.59 Table 4A.1 crodata.61 To increase the geographic cov-
shows the share of the global or regional erage, data from the All the Ginis database
population that is covered by the surveys (Milanovic 2014) are also used.62 Because
included in the database. The regional de- not every country holds a household survey
nitions in table 4A.1 follow Lakner and Mi- annually, observations are grouped into six
lanovic (2016a) and are different from the benchmark years from 1988 to 2013 in ve-
regions used in this chapter. In 2013, 80 per- year intervals. If data for a benchmark year
cent of the global population was covered. are not available, the nearest year within a
TABLE 4A.1 Population Coverage of the Data Used in the Global Inequality Estimates
Benchmark year
Region 1988 1993 1998 2003 2008 2013 Mean
World 81 92 92 94 94 80 89
(Number of surveys) (74) (114) (119) (137) (139) (103) (114)
Mature economies 95 99 99 96 98 86 96
China 100 100 100 100 100 100 100
India 100 100 100 100 100 100 100
Other Asia 75 86 89 89 90 69 83
Middle East and North Africa 61 69 64 68 70 19 59
Sub-Saharan Africa 28 73 68 80 86 40 62
Latin America and the Caribbean 89 94 96 97 95 97 95
Russian Federation, Central Asia, Southeastern Europe 22 80 86 100 90 88 78
Sources: Lakner and Milanovic 2016a; Milanovic 2016; World Bank calculations based on PovcalNet (online analysis tool), World Bank, Washington, DC, http://iresearch
.worldbank.org/PovcalNet/
Note: The cells in the table show the share of the global or regional population (in percent) accounted for by the surveys included in the database. The last column is the simple
average over the benchmark years from 1988 to 2013. The regions are dened in Lakner and Milanovic (2016a).
INEQUALITY 89
TABLE 4A.2 Population Coverage of the Data Used in the Analysis
Share of regional population covered by data (%)
Eastern Latin America Middle East
East Asia Europe and and the and North South Sub-Saharan Industrialized
World and Pacic Central Asia Caribbean Africa Asia Africa countries
A. Full sample
1988 (73 countries) 79 90 93 91 42 96 10 75
1993 (102 countries) 88 95 87 93 76 97 68 77
1998 (106 countries) 71 95 82 95 70 22 71 75
2003 (135 countries) 91 95 99 94 77 98 77 78
2008 (136 countries) 92 96 93 95 72 98 70 95
2013 (101 countries) 80 94 90 92 32 87 52 69
B. Sub-samples
Balanceda (41 countries) 46 88 14 79 22 11 4 66
Long-run trendsa (91 countries) 84 95 83 87 62 97 53 76
Short-run trendsa (81 countries) 54 81 87 90 32 12 21 69
Sources: WDI (World Development Indicators) (database), World Bank, Washington, DC, http://data.worldbank.org/data-catalog/world-development-indicators; World
Economic Outlook Database, International Monetary Fund, Washington, DC, https://www.imf.org/external/pubs/ft/weo/2016/01/weodata/index.aspx.
Note: The cells in the table show the share of the global or regional population (in percent) accounted for by the surveys included in the database. For the balanced and trend
samples, the population coverage refers to the nal year.
a. For the balanced and trend samples, the population coverage refers to the nal year.
two-year window around the benchmark 4A.2. These samples are different from those
year is chosen.63 These estimates do not described above because, if a country is to be
extrapolate or interpolate, and they mix included, it needs to be observed in the ini-
income and consumption surveys, as dis- tial and nal year of the period considered.66
cussed in the main text. Furthermore, only countries that have the
Table 4A.2 shows the population cov- same welfare measure (income or consump-
erage of the resulting database by region.64 tion) in both these years are included.67 The
The regional denition used throughout long-run trend sample is thus a subset of
this chapter follows the World Banks geo- the benchmark-year sample. The short-run
graphical classication, except for the in- sample is based on the World Bank Global
dustrialized countries category, which is Database of Shared Prosperity (see chapter
a subcategory of the World Banks high- 3).68 This database includes countries with
income countries group.65 surveys around 2008 and 2013 in which
In the main sample, as many countries as welfare aggregates satisfy a high standard of
possible are used in each benchmark year. comparability.69 The subset of 75 countries
This implies, however, that the country for which the initial and nal years t the
sample may change from year to year, which benchmark years 2008 and 2013 is then se-
could lead to spurious changes arising from lected.70 In particular, the initial year has to
such sample attrition. To abstract from be between 2006 and 2010 and the nal year
such changes, results are also presented for between 2011 and 2015. Where possible, ad-
the sample of countries that are present in ditional countries from last years version
every benchmark year between 1988 and of the shared prosperity database (covering
2013 (see the balanced sample row in table 200712 on average) are included, as long as
4A.2). Countries included in this sample they t these requirements. This produces
also need to have the same welfare metric the sample of 81 countries short-run spells.
(income or consumption) in all years. There exists a large number of alternative
Figure 4.10 in the main text compares sources for data on Gini indexes (or other
changes in inequality over two periods: distributional statistics). As reviewed in de-
19932008 (long run) and 200813 (short tail in a recent special issue of the Journal
run). The population coverage of these sam- of Economic Inequality (Ferreira, Lustig, and
ples is shown in the last two rows of table Teles 2015), these databases cover distribu-
INEQUALITY 91
14. Dollar, Kleineberg, and Kraay (2015, 2016); are beyond the scope of this chapter. The
World Bank (2016a). World Bank has worked extensively on mea-
15. Bourguignon (2004) described this poverty- suring and monitoring horizontal inequali-
growth-inequality triangle more than 10 ties, for example, through the calculation of
years ago. A sizable literature discusses the the human opportunity index. This index
relationships among poverty reduction, measures access to basic services and cor-
growth, and inequality. Analogous to the rects the observed access rate by the degree
evidence presented here, this literature im- of intergroup inequality. The relevant roles
plies that changes in inequality are, on aver- played by race and ethnicity, gender, age, lo-
age, uncorrelated with economic growth, as cation, and socioeconomic status of house-
reviewed by Ferreira (2012). holds have been accounted for and com-
16. World Bank (2016a). pared in Latin America and the Caribbean,
17. Reducing inequality is not always associated Sub-Saharan Africa, and the Middle East
with good outcomes. For example, the re- and North Africa. See Barros et al. (2009);
duction of inequality observed in the Mid- Dabalen et al. (2015); Krishnan et al. (2016).
dle East and North Africa region coexisted 24. A relative measure obeys the scale invari-
with an increasing sense of frustration and ance axiom (see box 4.3). Among relative
resentment drawing from redistribution measures, the analysis here does not involve
without voice, a shortage of quality jobs in tests for robustness to alternative measures
the formal sector, poor-quality public ser- (or Lorenz dominance more generally), but
vices, and a lack of government account- mostly relies on the Gini index.
ability. A lesson from this experience is that 25. Detailed robustness checks are presented
how inequality is reduced matters: a system in Lakner and Silwal (2016). See also the
of generalized subsidies conceived to reduce special issue of the Journal of Economic In-
poverty and inequality did not overcome the equality that reviews the various inequality
rising frustration because of waning oppor- databases (Ferreira, Lustig, and Teles 2015).
tunities. See World Bank (2015). 26. SEDLAC (Socio-Economic Database for
18. World Bank (2014). Latin America and the Caribbean), Center
19. For example, see Atkinson and Piketty for Distributive, Labor, and Social Studies,
(2007, 2010). Facultad de Ciencias Econmicas, Universi-
20. See, for instance, Lpez-Calva and Lustig dad Nacional de La Plata, La Plata, Argentina;
(2010). Equity Lab, Team for Statistical Develop-
21. This is remarkable given that the house- ment, World Bank, Washington, DC, http://
hold survey in Argentina uses income, while sedlac.econo.unlp.edu.ar/eng/statistics.php.
China uses consumption expenditure. In- 27. As summarized by Beegle et al. (2016), other
equality in income tends to be greater than aspects that could make surveys incompa-
inequality in consumption. rable include changes in survey design (for
22. This section uses household surveys from instance, urban or national coverage), im-
around the world, relying primarily on plementation (such as effects of seasonality),
PovcalNet, an online tool that allows users to or the questionnaires (for example, a recall
access the World Banks repository of house- period for consumption expenditure). Al-
hold surveys. It is designed mainly to allow though PovcalNet enforces some degree of
users to replicate World Bank estimates comparability across countries, differences
of absolute poverty, but it also provides might exist in terms of these aspects or the
distributional statistics such as the Gini type of spatial price adjustment. In addition
index. See PovcalNet (online analysis tool), to the potential nonresponse at the top tail,
World Bank,Washington,DC,http://iresearch surveys might exclude the poorest living in
.worldbank.org/PovcalNet/. remote regions or poorly measure their in-
23. This chapter concentrates on vertical in- comes; for instance, Meyer et al. (2015) dis-
equality, that is, comparing the rich and the cuss missing transfer incomes in the United
poor. A horizontal perspective might look States.
at differences among people based on sex, 28. See the explanation of the twin goals in the
ethnicity, location of residence, or age. These Overview and in chapter 1. For ease of expo-
INEQUALITY 93
from multiple sources, such as differences been discussed by Beegle et al. (2016) and
in the inequality measure (mean log devi- Cornia (2014). Milanovic (2003) argues that
ation vs. Gini index), the country cover- African inequality is too high given the rela-
age, and the use of decile groups vs. the full tively widely shared land ownership.
microdata. 53. Morelli, Smeeding, and Thompson (2015)
43. Owing to the equal treatment of countries report trends in the Gini index of equivalent
in the unweighted analysis, the impact on household income drawn from data of the
the worldwide trend of the rapid increase in Organisation for Economic Co-operation
inequality in large countries, notably, China, and Development (OECD) and national
is less than the impact on the weighted esti- statistical ofces.
mates of average within-country inequality. 54. See Beegle et al. (2016).
44. In addition, for a country to be included in 55. As a rough adjustment for sampling errors,
the balanced sample, it needs to have the we ignore changes within 1 point. With a
same welfare measure (income or consump- lack of condence intervals, any such cut-
tion) throughout, as explained in more de- off value is essentially arbitrary. We follow
tail in annex 4A. Alvaredo and Gasparini (2015), who use 1
45. See chapter 2, annex 2B, for the list of indus- point, which, they argue, is typically signi-
trialized countries. cant in the SEDLAC surveys (also see Statis-
46. The decline in inequality in the region is tics Canada, referenced by Atkinson 2003).
supported by the expansion in real hourly Atkinson, Rainwater, and Smeeding (1995)
earnings among the bottom of the wage dis- refer to a change in the Gini index between
tribution and, to a lesser extent, the middle 1 and 2 points as a modest increase. Other au-
part of the earnings distribution. The de- thors have used +/ 1 percent or +/ 2 per-
cline in wage inequality in Latin America cent (Burniaux et al. 1998; Smeeding 2000),
has been closely associated with a reversal which would correspond to 0.4 Gini points
in the college/primary education premium and 0.8 points, respectively, evaluated at the
and in the urban-rural earnings gap, cou- average within-country Gini of 40 in our
pled with a steady drop (which accelerated sample. This suggests that our cutoff value is
markedly beginning in the rst decade of the relatively conservative. However, even if such
2000s) in the high school/primary education changes may be statistically signicant, they
premium as well as a decline in the experi- are not necessarily economically signicant,
ence premium across all age-groups. See for which Atkinson (2003) proposes a 3 point
Rodrguez-Casteln et al. (2016). cutoff (in his sample of OECD countries).
47. Szkely and Mendoza (2015). Without any adjustment for sampling errors,
48. Cord et al. (2016); Gasparini, Cruces, and inequality increases (falls) in 46 (45) coun-
Tornarolli (2016). tries in the long-run spells, and in 30 (51)
49. Regional averages can mask substantial vari- countries in the short-run spells.
ability across countries. This is also notable 56. As a result, the population-weighted aver-
in the case of Sub-Saharan Africa, where age Gini in this sample increased by 2.1
countries are almost evenly split across ris- points, from 37.1 to 39.2, between 1993 and
ing and falling inequality in recent years (see 2008.
Beegle et al. 2016; Cornia 2014). 57. However, there might be issues with survey
50. Milanovic and Ersado (2010). comparability. Cornia (2014) also docu-
51. One reason the trends in regional averages mented this bifurcation of inequality trends
need to be interpreted carefully is the change in Sub-Saharan Africa. Recently, Beegle et al.
in country composition from one bench- (2016) nd that a set of African countries
mark year to the next, especially in regions with at least two strictly comparable and
with many countries that do not have sur- recent surveys is split evenly into rising and
veys every ve years. This explains some of falling inequality. Their surveys are drawn
the large changes in East Asia and South Asia from the 2000s and, so, concern a slightly
illustrated in gure 4.7. different period relative to the trends in this
52. This has been noted by Ferreira and Raval- chapter.
lion (2009). Africas wide inequality has also 58. Hallegatte et al. (2016).
INEQUALITY 95
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INEQUALITY 99
Reductions in Inequality: 5
A Country Perspective
This chapter describes the key drivers behind the remarkable progress achieved by selected
countries in boosting shared prosperity, narrowing inequality, and reducing poverty. These
countriesBrazil, Cambodia, Mali, Peru, and Tanzaniaare diverse in terms of geographical
location, income status, development trajectory, and historical background. The heteroge-
neity of their experiences facilitates an examination of how environment, macroeconomic
policies, sectoral strategies, and the management of external shocks interact to produce
successful outcomes.
The countries all exercised cautious macroeconomic management, appropriately dealt
with external shocks, and implemented extensive and orderly economic and social sector
reforms. They also beneted from a global context that was particularly favorable, with abun-
dant and cheap credit in international markets, booming trade, and high commodity prices.
These steps and the context allowed rapid, sustainable, and inclusive growth. They also
highlight the importance of labor markets in translating economic growth into an expan-
sion in opportunities by creating jobs and increasing earnings, promoting the integration of
individuals otherwise excluded from economic and social advancement, and reducing gaps
among workers owing to gender, residence, or sector. Country-specic choices also play
a role in rolling back inequalities. Thus, the minimum wage and safety nets have played
a substantial role in Brazil, while the shift from agriculture toward light manufacturing and
services in Cambodia opened up employment for the poor.
The examples conrm that good macroeconomic policies are essential to fostering shared
prosperity. Rapid, sustained economic growth and a favorable context render the effort to
establish equality easier. Coherent domestic policies, scal space, and improvement in the
functioning of labor markets help undermine inequality. While the specic drivers are likely to
diverge across countries, sustaining inequality reduction into the future may require some of
the same elements: regular investments in human capital accumulation, enhanced produc-
tivity, economic diversication, spending on infrastructure to link lagging regions, and the
framing of adequate safety nets. These country experiences also demonstrate that success
in narrowing inequality does not necessarily translate into success on other economic, polit-
ical, and social fronts. For example, conict has recently resurged in Mali after two decades
of relative stability. Despite some diversication in the economy, the absence of growth and
competition continue to characterize the private sector in Tanzania. And recent decisions
regarding the control of scal balances and ination in Brazil have contributed to the reces-
sion in that economy as the global context has become less favorable.
58 5
56 4
3
54
2
52
1
50
1981 1990 2005 1999 1993 1987 1984 2008 2002 1996 2011 2014 0
5 20 35 50 65 80 95
Brazil Latin America and the Caribbean
Income percentile
Sources: Tabulations of Equity Lab, Team for Statistical Development, World Bank, Washington, DC, based Annualized growth of percentile
on data in the SEDLAC database; WDI (World Development Indicators) (database), World Bank, Washing- Average growth
ton, DC, http://data.worldbank.org/data-catalog/world-development-indicators; PovcalNet (online analysis
tool), World Bank, Washington, DC, http://iresearch.worldbank.org/PovcalNet/. Source: Tabulations of Equity Lab, Team for Statistical Devel-
Note: The data are based on a regional data harmonization effort that increases cross-country com- opment, World Bank, Washington, DC, based on data in the
parability and may differ from ofcial statistics reported by governments and national statistical ofces. SEDLAC database.
The welfare indicator used to compute the Gini is household per capita income. The Gini ranges from
0 (perfect equality) to 100 (perfect inequality). The Latin America and Caribbean aggregate is based on
17 countries in the region on which microdata are available. The Gini index of the Latin America and
Caribbean region is computed based on pooled country-specic data previously collapsed into 8,000 individual incomes of top earners, conrms
percentiles. In cases where data are unavailable for a given country in a given year, values have been
interpolated by projecting incomes for that year based on GDP growth and assuming no changes in the the decline in the Gini, but at a more mod-
distribution of incomes in the interpolated year. Dotted lines cover years in which data are not available est pace.3
or present quality issues. The marked drop in income inequal-
ity helped translate economic growth into
The incomes of the less well off surged large poverty reductions. Between 2004 and
between 2004 and 2014 amid rapid eco- 2014, 26.5 million Brazilians exited pov-
nomic growth. Figure 5.2 shows that the erty.4 While 22 in every 100 people were
average annual growth in the incomes of living on an income of less than R$140 a
the bottom 10 doubles that of the top 10. month in 2004, this was only true of 7 in
The World Banks indicator of shared pros- 100 Brazilians 10 years later.5 The share of
peritythe growth rate of household in- the population living on less than US$1.90
come per capita of the bottom 40high- a day (in 2011 purchasing power parity
lights how Brazils growth in the recent past [PPP] U.S. dollars) fell from 11.0 percent
has disproportionally beneted the poorest to 3.7 percent during the period. Decom-
households. Between 2004 and 2014, the position exercises conclude that about 60
income growth among the bottom 40 aver- percent of this reduction was caused by the
aged 6.8 percent a year, compared with 4.5 average increase in incomes among Brazil-
percent for the average Brazilian. Over the ian households (the growth effect), while
same period, incomes among the bottom the remaining 40 percent can be attributed
40 in Brazil rose at the second fastest rate in to improvements in income distribution
the region, only surpassed by Bolivia. This among Brazilians (gure 5.3).
suggests that most of the decline in overall Despite these achievements, the country
inequality occurred because of a reduction is still highly unequal. In 2014, the bottom
in inequality at the bottom of the income 40 held approximately 12 percent of total
distribution. Alternative evidence drawing income, while the top 20 held 56 percent.6
on tax records, which are more effective That year, Brazils Gini index of 51, while
than household surveys at capturing the notably lower than 10 years previously, was
Gini index
produced by low-skilled workerswill be
30
an important precondition for sustaining
job creation and boosting the earnings of the
poor and vulnerable. Otherwise, the decline 26.0
in income inequality in Brazilassociated
with decisions on minimum wages, social
transfers, and shifts in labor demandruns
the risk of being short-lived in the absence
of more rapid productivity growth and fa- 20
2004 2007 2013
vorable external conditions.21 Furthermore,
in a context of much tighter scal resources, Source: Calculations based on data in Measuring Inequality,
there is a growing need to improve the pro- World Bank, Washington, DC, http://go.worldbank.org
/3SLYUTVY00; PovcalNet (online analysis tool), World Bank,
gressivity and efciency of taxes and trans-
Washington, DC, http://iresearch.worldbank.org/PovcalNet/.
fers. Expanding the access to basic services Note: The numbers presented here are based on a regional data
thereby closing the remaining gapsand harmonization effort that increases cross-country comparability
and may differ from ofcial statistics reported by governments
improving the quality of these services con-
and national statistical ofces. The welfare indicator used to
stitute an immediate priority in the effort to compute the Gini is total household per capita consumption.
maintain previous successes. The Gini ranges from 0 (perfect equality) to 100 (perfect
inequality).
3
0.4
2 0
1
0.5
0
1.5
1 1
2
2 14 26 38 50 62 74 86 98 1.5
Consumption percentile
b. 200106 2
3 Growth Redistribution
a-day poverty rate (2011 PPP U.S. dollars) into two components:
2 the growth in household per capita income, keeping distribution
constant (the growth effect), and the change in the distribution
2 of income, keeping average income constant (the redistribution
effect), as developed by Datt and Ravallion (1992).
6
4
2 What is behind the reductions
0 in inequality?
2
During the 1980s and 1990s, the govern-
4
ment of Mali implemented a series of
6
structural reforms aimed at shifting from
8 a state-controlled economy toward a more
10 market-oriented system. The reforms in-
2 14 26 38 50 62 74 86 98 cluded price and trade liberalization, tax
Consumption percentile reform, and legal and regulatory reforms.
Annualized growth of percentile Average growth In addition, the transition to democracy
Source: Tabulations based on SSAPOV database harmonization, Sub-Saharan Africa Team for Statistical that had started in the 1990s was followed
Development, World Bank, Washington, DC. by two decades of relative political stability
2
48 5.5
3
46
4
44
5
42
6
40
2004 2006 2008 2010 2012 2014 7
3.5
Peru Latin America and the Caribbean 8
4
What is behind the reduction in
inequality?
3
The remarkable improvement in the living
2
conditions of the poor and the bottom 40
1 results from the outstanding growth of the
0
economy in a context of macroeconomic
10 20 30 40 50 60 70 80 90 100 stability, favorable external conditions, and
Income percentile important structural reforms. The structural
Annualized growth of percentile reforms implemented in the 1990s laid the
Average growth foundations for the economic recovery ob-
served since the early 2000s. These reforms
Source: Tabulations of Equity Lab, Team for Statistical Devel-
opment, World Bank, Washington, DC, based on data in the included trade and nancial liberalization,
SEDLAC database. a more exible exchange rate regime, and
Tanzania: sharing
35.8
prosperity in the midst of
Gini index
diversication 35
Inequality reduction
Tanzania maintained robust and stable
economic growth between 2004 and 2014,
averaging 6.5 percent a year. After a long
period of stagnation, the poverty headcount
declined from 34.4 percent in 2007 to 28.2 30
2001 2007 2012
percent in 2012, while extreme poverty fell
from 11.7 percent to 9.7 percent.63 The re- Source: PovcalNet (online analysis tool), World Bank, Wash-
duction in poverty appears more substan- ington, DC, http://iresearch.worldbank.org/PovcalNet/.
Note: The numbers presented here are based on a regional data
tial if one uses the international poverty line harmonization effort that increases cross-country comparability
of US$1.90 per person per day. Based on and may differ from ofcial statistics reported by governments
this measure, the headcount ratio dropped and national statistical ofces. The welfare indicator used to
compute the Gini is total household per capita consumption.
from 59.9 percent to 48.8 percent between The Gini ranges from 0 (perfect equality) to 100 (perfect
2007 and 2012. inequality).
2 3
0
4
3.7
2
5
4
0 20 40 60 80 100 6
Comsumption percentile
Annualized growth of percentile 7
Growth Redistribution
Average growth
Source: World Bank 2015c using the 2007 and 2011/12 house-
Source: World Bank 2015c based on data of the 2007 and
hold budget surveys.
2011/12 household budget surveys.
Note: The data have been calculated using a Shapley approach
(Shorrocks 2013) that decomposes the change in the poverty
rate using a national poverty line of T Sh 36,482 per adult per
to an additional consumption value of only month, equivalent to a US$1.00-a-day poverty rate (2005 PPP
T Sh 4,300 per adult per month among U.S. dollars), into two components: the growth in household per
capita income, keeping distribution constant (the growth effect),
the poorest quintile, equivalent to approxi- and the change in the distribution of income, keeping average
mately 10 percent of the cost of basic con- income constant (the redistribution effect), as developed by Datt
sumption needs (less than US$3.00). and Ravallion (1992).
A decomposition of the reduction in
poverty at the national level between an
increase in mean household consumption accelerated economic growth, benets that
(the growth effect) and changes in the dis- continued into the 2000s.67 The surge in
tribution of household consumption (the growth in the early 2000s is partly attribut-
redistribution effect) between 2007 and able to the pursuit of reforms through the
2012 suggests that distributional changes 1990s that sought to increase exports, use
are more important than growth changes scarce foreign exchange more efciently,
in explaining the reduction.66 Household reduce the involvement of the public sec-
consumption growth contributed around tor in commercial activities, and liberalize
40 percent (or 2.5 percentage points) of the market for goods and services.68 Steady
Tanzanias poverty reduction, while the nar- economic growth was also based on pru-
rowing in inequality contributed 60 percent dent macroeconomic policies to control
(3.7 percentage points) (gure 5.15). ination and restore stability in exchange
rates: achievements that were nonetheless
challenged by, for example, a high ination
What is behind the reductions
episode in 201112. In addition, the tran-
in inequality? sition from a socialist to a market-based
Since independence in 1962, the govern- economy gave a further, signicant boost to
ment of Tanzania has undertaken a grad- domestic production. However, this transi-
ual and partial transition from a state-led tion to a market-based economy is not fully
development strategy to a market-based completed: the private sector is still charac-
economy. Following the debt crisis in 1986, terized by high levels of market concentra-
it undertook structural reforms that opened tion and informality and low levels of pro-
up the economy to foreign investors and ductivity, mainly because of weak market
This chapter discusses what we know about key domestic policy interventions that are effec-
tive in reducing inequality, the benets they generate, the choices that need to be made
concerning their design and implementation, and the trade-offs with which they are asso-
ciated. The chapter does not provide an exhaustive or comprehensive review of every inter-
vention that could reduce inequality, nor does it supply universal prescriptions. Instead,
it focuses on a few policy areas on which there is a sufcient body of rigorous evidence
to draw out useful lessons with condence: early childhood development (ECD), including
breastfeeding; universal health care; good-quality education; conditional cash transfers (CCTs);
investments in rural infrastructure; and taxation. The several lessons that are revealed through
the examination are supported by consolidated and emerging evidence and appear to be
generally valid.
Despite progress, disparities persist today that are affecting well-being, the access to
basic services, and current and future economic opportunities among the poor. Pathways
to reduce inequality are many, from narrowing gaps in income generation opportunities to
reducing the potential for inequalities in human capital development before they emerge;
smoothing consumption among the most deprived, especially during shocks; and redistrib-
uting in favor of the poor.
Although many interventions do not have equalizing objectives, they are associated with
equalizing outcomes. Improved competition and economic efciency are compatible with
reducing inequality. The ne points of policy design absolutely matter in determining the
extent to which policy interventions lead to reductions in inequality without compromising
efciency. Therefore, in the design of equalizing policies, implementation trade-offs should
not be overlooked because of too much attention to efciency and equity trade-offs.
Nonetheless, universal prescriptions and unique models are problematic. Evidence indi-
cates the value of general principles and the analysis of lessons learned. Integrated, simple,
and exible interventions are more likely to succeed than individual interventions, and the
composition of interventions dictates the extent of success. Equalizing interventions are not
a luxury exclusive to middle- and high-income countries, nor an option only during periods of
prosperity. Good interventions are possible in all settings and at all times, including among
low-income countries and during crises, and they may disproportionally favor the poorest
households. To achieve this, the most deprived and the most vulnerable must be involved
in the interventions. Knowledge about appropriate policies and interventions has increased
signicantly in recent decades, but more microeconomic data and better analysis of these
data are needed.
Development quotient
public spending required to address grade 105
repetition, social assistance transfers, and
crimeare taken into account.8 On breast- 100
feeding, a recent meta-analysis estimates the
economic impact of exclusive breastfeeding 95
during a prolonged period (until age 12
months or later) at US$302 billion, or 0.5 90
percent of the worlds gross income.9
Given the broad nature of ECD inter- 85
ventions, those interventions reported to Birth 6 12 18 24
have the largest benets and associated with Age (months)
the most compelling supporting evidence Children of normal height
of such benets are examined here: par- Stimulation and nutritional supplement
Control group
enting skills, preschool, breastfeeding, and
nutrition.10 Source: Grantham-McGregor et al. 1991.
Note: Development quotient = age of the group into which test
scores place the child, divided by the childs chronological age
Parenting skills and multiplied by 100.
Sources: Abramovsky et al. 2014; Avram, Levy, and Sutherland 2014; Clements et al. 2015;
De Agostini, Paulus, and Tasseva 2015; Fabrizio and Flamini 2015; Tsibouris et al. 2006;
World Bank 2016c.
a. IMF (2014).
or conict. This weak capacity prevents au- ciency reasons, Eastern European countries
thorities from raising signicant revenues, impose at-rate income taxes, which render
launching progressive schedules, avoiding personal income taxes less redistributive
evasion, and ensuring compliance.168 than progressive personal income taxes at
A limited redistributive role is sometimes the same level of revenue collection.
the result of the small size of the pie, which While some analysts believe that more-
does not allow signicant redistribution. unequal countries redistribute more, this
Even if poor countries were politically and belief is called into question by the large dif-
administratively able to shift large shares of ferences in the level of redistribution across
income from the rich to the poor, they would countries at similar levels of inequality.171
need prohibitive marginal income tax rates For example, Chile and Colombia share
to end poverty and substantially narrow in- similarly high levels of market inequality,
equality.169 However, a recent analysis shows but Chile redistributes income signicantly
that much of global poverty as dened by more than Colombia. Mexico and Peru also
the US$1.90 per capita per day poverty line have similar levels of inequality, but only
could be eliminated in developing countries Mexico redistributes income substantially.
by reallocating regressive fossil-fuel energy Indonesia and the Russian Federation also
subsidies and excessive military spending to show comparable, though much lower lev-
cash transfers.170 els of inequality, but only Russia appears to
Limited redistribution is not exclusively redistribute signicantly.172 Redistribution
related to low-income countries or, more is also limited in Ethiopia and Sri Lanka;
generally, to a countrys level of develop- in South Africa, it is more appreciable.173
ment. Indeed, certain tax choices limit the The norm is that the size of the tax benet
redistributive capacity of tax systems in system is closely correlated with the redis-
middle- and high-income countries. Thus, tributive effect. This is important because
Brazils heavy reliance on consumption countries with large tax systems also tend
taxes that include basic foodstuffs, which to provide large benet transfers, which,
represent a disproportionally large share ultimately, show more redistributive im-
of the poors consumption budget, reduces pacts.174 This explains how Russia and
the redistributive impact of the scal system South Africa achieve greater redistribution
(chapter 5). For administrative and ef- through the scal system than Indonesia