The challenge of Inequality

Abstract

"Inequality is a major challenge for poverty reduction and a crucial obstacle for achieving the Millennium Development Goals. There are both intrinsic and instrumental reasons why inequality matters, such as social justice and morality, putting the poor first, growth and efficiency, political legitimacy, and public policy goals (see page 13). More rapid income poverty reduction requires both a more rapid pace of growth and a more pro-poor pattern, which implies a reduction of the inequalities that limit the prospects for poor people to share in the opportunities created by economic growth. The poverty impact of growth has been shown to be more than 10 times higher in those countries that combined growth with falling rather than rising inequality. However, all forms of inequality may not necessarily be harmful. While inequalities in opportunities are clearly both inefficient and unfair, it can be argued (see pages 20 and 23) that income differences reflecting varying degrees of effort—and that provide incentives—in education, work and risk-taking entrepreneurship, are helpful for the living-standards of the poor over time. On the other hand, such “good” inequalities arising in one generation may lead to “bad” inequalities for the next, which will still be unacceptable for all the above-mentioned reasons. This issue of Poverty in Focus highlights inequality as one of IPC’s priority areas of research. It provides some of the most important recent research results on the extent of inequality in the distribution of wealth and incomes at both the global and national levels, on analytical aspects of causes and patterns, and on policy conclusions and recommendations." (...)