Income Inequality And Poverty

In addition to its direct effect on poverty, inequality also effects poverty indirectly through its impact on growth. Initial cross-country studies found that greater initial income inequality actually reduces future growth even after controlling for initial levels of GDP and human capital. Evidence predominantly suggests that inequality is bad for growth. The World Development Report 2000/01 concludes that better distribution is possible without a reduction in economic growth. In other words there is no inevitable trade-off between equity and efficiency. On the contrary, lower inequality can create faster growth. Low inequality can, therefore, benefit the poor in two ways; by increasing overall growth and average incomes, and by letting them