• Inequality
• Gender poverty reduction strategies

Inequality

When inequality rises, does poverty also rise? This paper examines this question using both absolute and relative measures of inequality. Relative inequality is based on ratios - the higher the ratio between the income of the rich and the poor, the higher the relative inequality. Absolute inequality reflects the distance between the poor and rich on the income scale – the larger the income difference between the poor and the rich is the higher the levels of absolute poverty.

Based on an analysis of poverty and inequality measures for 70 developing and transition economies in the 1990s, the author finds that:

• when using relative measures of inequality, there are no sign of a systematic trade-off between absolute poverty levels and relative inequality - higher poverty tends to come hand in hand with higher relative inequality
• when using absolute measures of inequality, it finds that rising inequality is associated with falling poverty
  

The key reason why the trade-off is not found when using the relative measures of inequality is that economic growth is weakly linked to changes in relative inequality. The author contends that there is more to the changes in inequality and poverty than is captured by the simple idea of a poverty-inequality trade-off.

These findings highlights the crucial importance of the concept of inequality one uses in policy discussions. Those who think about inequality in relative terms will reject the idea of a poverty-inequality trade-off, while those who are more inclined to think about inequality in absolute terms will tend to see such a trade-off.

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