Lecture 6 Income Inequality and Growth Overview Measuring Inequality Measuring Absolute Poverty Why is high inequality bad Fields Typologies Kuznets Curve Policy options Measuring Inequality ID: 603863
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Slide1
Economic Development
Lecture
6: Income Inequality
and GrowthSlide2
Overview
Measuring Inequality
Measuring Absolute Poverty
Why is high inequality bad?
Fields’ Typologies
Kuznets Curve
Policy optionsSlide3
Measuring Inequality
Inequality of what?
Income
Sen’s
approach
Size distribution of income (quintiles, deciles)
Kuznets ratioSlide4
Lorenz
CurveSlide5
Lorenz CurveSlide6
Gini CoefficientSlide7
Source: UN Human Development Report, 2009
Global Income InequalitySlide8
Gini v Growth by RegionSlide9
Factor Share Distribution of IncomeSlide10
Measuring Absolute Poverty
One possible definition (
World Summit on Social Development in Copenhagen, 1995)
“
a condition characterised by severe deprivation of basic human needs, including food, safe drinking water, sanitation facilities, health, shelter, education and information. It depends not only on income but also on access to services.
”
Definition relative to what you consider to be the minimal acceptable standard of livingSlide11
Measuring Absolute Poverty
One attempt at definition: David Gordon
Absolute poverty as absence of 2 of the following
Food:
Body Mass Index above 16
Safe drinking water:
Not come solely
from
rivers and ponds, and available nearby (less than a 15 minute walk each way)
Sanitation facilities:
Toilets or latrines accessible in or near home
Health:
Treatment for serious illnesses and pregnancy
Shelter:
Fewer than four people living in each room, floors not made of dirt, mud, or clay
Education:
Attend school or otherwise learn to read
Information:
Access to newspapers, radios, televisions, computers, or telephones at home
Access to services:
Education, health, legal, social, and financial (credit) servicesSlide12
Measuring Absolute Poverty
International poverty lines
USD 1 / day
World Bank from 2008 uses USD 1.25 / day using PPP
National poverty lines
Headcount, or % of population
Human Poverty Index
Life expectancy
Education
Safe water access / proportion of underweight childrenSlide13
Total Poverty GapSlide14
Measuring Absolute Poverty
Average poverty gap (TPG / N)
Average income shortfall (TPG / headcount of the impoverished)
Forster-Greer-
Thorbecke
Index
A Gini Coefficient of the Total Poverty Gap!Slide15
Source: UN Human Development Report, 2009
Distribution of poverty: USD 1.25 / daySlide16
Distribution of poverty: USD 2 / day
Source: UN Human Development Indices, 2008 Slide17
People living in poverty: ‘81-’02Slide18
Why is high inequality bad?
Economic Inefficiency
Lower savings rate
Human capital
Social stability
Conflict
Rent-seeking
Moral imperative
Meritocracy v entrenched disadvantageSlide19
Fields’ Typologies:
Modern Sector Enrichment
Slide20
Fields’ Typologies:
Traditional Sector Enrichment
Slide21
Fields’ Typologies:
Modern Sector EnlargementSlide22
Kuznets CurveSlide23
Policy Options
4 approaches:
Factor share distribution
Asset ownership
Land reform
Access to educationSlide24
Policy Options
Relative factor prices
Restrict wage increases, at least until agricultural surplus exhausted
Minimum wages?
Capital subsidies?
Pro-
labour
intensive industrial policy
Protectionism?
Otherwise, remove price distortionsSlide25
Policy Options
Reducing the distribution to the rich
Progressive tax system
Increasing the distribution to the poor
Welfare
Direct provision of goods and services
Subsidies / fiscal support with pro-poor focus
Public insurance schemes
Microfinance