Copyright © 2006 Pearson Addison-Wesley. All rights reserved. Chapter 5 Poverty, Inequality, and...

Copyright © 2006 Pearson Addison-Wesley. All rights reserved.

Chapter 5

Poverty, Inequality, and Development

Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 5-2

The Growth Controversy: Seven Critical Questions

What is the extent of relative inequality, and how is this related to the extent of poverty?

Who are the poor? Who benefits from economic growth? Does rapid growth necessarily cause

greater income inequality? Do the poor benefit from growth?


The Growth Controversy: Seven Critical Questions

Are high levels of inequality always bad? What policies can reduce poverty?


Measuring Inequality and Poverty

Measuring Inequality– Size distributions


Table 5.1



Measuring Inequality– size distributions– Lorenz curves


Figure 5.1


Figure 5.2



Measuring Inequality– Size distributions (see Table 5.1)– Lorenz curves (see Figures 5.1 and 5.2)– Gini coefficients and aggregate measures of

inequality (see Figures 5.3 and 5.4)


Figure 5.3


Figure 5.4



Measuring Inequality– Size distributions– Lorenz curves– Gini coefficients and aggregate measures of

inequality– Functional distributions (see Figure 5.5)


Figure 5.5



Measuring Absolute Poverty– Headcount Index– Total poverty gap

– Where Yp is the absolute poverty line

– Yi is income of person i

TPG Y Yp ii

H

( )1



Measuring Absolute Poverty– Average poverty gap

– Where H is number of persons– TPG is total poverty gap

APGTPG

H


Figure 5.6



Measuring Absolute Poverty– Foster-Greer-Thorbecke measure

Pn

Y Y

Y

p ii

H

p

1 1

( )


Measuring Inequality and Poverty:

Measuring Absolute Poverty– Total poverty gap– Average poverty gap– Foster-Greer-Thorbecke measure– The Human Poverty Index


Poverty, Inequality, and Social Welfare

What’s so bad about inequality?


What is so bad about inequality?

Inequality creates inefficiency:– Due to market imperfections– Due to increased conflict

Inequality is unjust


Inequality and Growth: Causal Mechanisms

Inequality Lower investment by the poor slow growth Lower education (credit market private,

political process public) slow growth Increased property crime slow growth Political Instability insecure Property Rights

slow growth Difficulty of consensus political inflexibility

slow growth



What’s so bad about inequality? Kuznets’s inverted-U hypothesis (see Figure

5.10 and Tables 5.2 and 5.3) and recent evidence


Figure 5.10


Table 5.2


Table 5.3


Figure 5.11


Figure 5.12


Inequality and Growth: Evidence

Source: Birdsall and Londoño (1997)



What’s so bad about inequality? Kuznets’s inverted-U hypothesis (see Figure 5.10

and Tables 5.2 and 5.3) and recent evidence Dualistic development and shifting Lorenz curves:

some stylized typologies– Traditional sector enrichment (see Figure 5.7)– Modern sector enrichment (see Figure 5.8)– Modern sector enlargement (see Figure 5.9)



What’s so bad about inequality? Kuznets’s inverted-U hypothesis Dualistic development and shifting Lorenz

curves: some stylized typologies Types of Growth and inequality (see Figure

5.13)


Figure 5.7


Figure 5.8


Figure 5.9


Figure 5.13


Absolute Poverty: Extent and Magnitude

Poverty: some progress


Figure 5.14


Figure 5.15


Figure 5.16


Table 5.4


Table 5.4 (cont’d)


Absolute Poverty: Extent and Magnitude

Poverty: some progress Growth and poverty (see Figures 5.17a and

5.17b)


Figure 5.17 (a)


Figure 5.17 (b)


Economic Characteristics of Poverty Groups

Rural Poverty (see Table 5.5)


Table 5.5


Economic Characteristics of Poverty Groups

Rural poverty Women and poverty Ethnic minorities, indigenous populations,

and poverty


Table 5.6


The Range of Policy Options: Some Basic Considerations

Areas of intervention Policy options

– Changing relative factor prices– Progressive redistribution of asset ownership– Progressive taxation– Transfer payments and public provision of

goods and services


Figure 5.18


The Range of Policy Options: Some Basic Considerations

Areas of intervention Policy options the need for a ‘package’ of policies


Concepts for Review

Absolute poverty Asset ownership Character of economic

growth Deciles Disposable income Elasticity of factor

substitution

Factor-price distortions Factor share

distribution of income Factors of production Foster-Greer-

Thorbecke (FGT) index Functional distribution

of income


Concepts for Review (cont’d)

Gini coefficient Headcount index Human Poverty Index Income inequality Indirect taxes Kuznets curve Land reform

Lorenz curve Neoclassical price-

incentive model Personal distribution of

income Poverty gap Progressive income

tax


Concepts for Review (cont’d)

Public consumption Quintiles Redistribution policies Regressive tax

Size distribution of income

Subsidy Workfare programs


Figure A5.1


Table A5.2

Copyright © 2006 Pearson Addison-Wesley. All rights reserved. Chapter 5 Poverty, Inequality, and...

Documents

Transcript of Copyright © 2006 Pearson Addison-Wesley. All rights reserved. Chapter 5 Poverty, Inequality, and...