Growth, Inequality and Poverty: What Do We Know?

This paper aims at analyzing the relationship between economic growth, income inequality and poverty. In particular, it surveys the literature in respect to the following questions: 1. Does economic growth increase or decrease income inequality? 2. Does poverty increase or decrease with economic growth? 3. Does growing inequality mean increasing poverty? 4. What considerations are relevant in choosing anti-poverty policies? The main conclusions arrived at are the following: 1. Although empirical evidence is not conclusive, there are strong signs that there is a positive association between economic growth and rising inequality. 2. Economic growth reduces poverty if income distribution remains constant over time. 3. The initial level of poverty has a negative effect on growth rates, and a high poverty rate also weakens the effect of growth on reducing poverty. 4. Given the trade-off between poverty and inequality, it seems advisable to use in anti-poverty policies the concept of poverty-minimizing inequality as the amount of inequality that society should tolerate to attain the goal of minimizing poverty. 5. It is useful to distinguish between structural and transient causes of poverty. 6. The provision of public goods plays a vital role in fighting poverty.