poverty and inequality pdf macroeconomic

Poverty And Inequality Pdf Macroeconomic

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This paper analyzes the relationship between macroeconomic factors and the income distribution using data on equivalized disposable household income from the United Kingdom for — We argue in favour of fitting a parametric functional form to the income distribution for each year, and then modeling the time series of model parameters in terms of the macroeconomic factors, as this better allows us to take into account non-stationarity in the time series. Estimates from models that relate income distribution parameters to cyclical variables in first differences to account for non-stationarity suggest that neither inflation nor unemployment have significant effects on income inequality.

While The Equality Trust recognises the importance of these measures, the focus of our work is specifically the gap between the well-off and the less well-off in the overall economic distribution.

This article explores the interrelationships among poverty, economic performance, and inequality in rich countries. It argues that poverty rises and falls with the business cycle and economic performance. Business cycle refers to macroeconomic fluctuations in economic growth, unemployment, and employment. Higher economic growth and lower unemployment rates mean more individuals employed.

How is Economic Inequality Defined?

There are wide varieties of economic inequality , most notably measured using the distribution of income the amount of money people are paid and the distribution of wealth the amount of wealth people own. Besides economic inequality between countries or states, there are important types of economic inequality between different groups of people.

Important types of economic measurements focus on wealth , income , and consumption. There are many methods for measuring economic inequality, [3] with the Gini coefficient being a widely used one. Another type of measure is the Inequality-adjusted Human Development Index , which is a statistic composite index that takes inequality into account.

Research suggests that greater inequality hinders economic growth, with land and human capital inequality reducing growth more than inequality of income. In , the ratio between the income of the top and bottom 20 percent of the world's population was three to one.

By , it was eighty-six to one. It concluded that key sources of inequality in these countries include "a large, persistent informal sector , widespread regional divides e. The three richest people in the world possess more financial assets than the lowest 48 nations combined. According to PolitiFact , the top richest Americans "have more wealth than half of all Americans combined.

The existing data and estimates suggest a large increase in international and more generally inter-macroregional components between and It might have slightly decreased since that time at the expense of increasing inequality within countries.

There is a significant difference in the measured wealth distribution and the public's understanding of wealth distribution. According to a study, global earnings inequality has decreased substantially since During the s and s, the share of earnings by the world's poorest half doubled. Widening income inequality is the defining challenge of our time. In advanced economies, the gap between the rich and poor is at its highest level in decades.

Inequality trends have been more mixed in emerging markets and developing countries EMDCs , with some countries experiencing declining inequality, but pervasive inequities in access to education, health care, and finance remain. In October , the IMF warned that inequality within nations, in spite of global inequality falling in recent decades, has risen so sharply that it threatens economic growth and could result in further political polarization. The Fund's Fiscal Monitor report said that "progressive taxation and transfers are key components of efficient fiscal redistribution.

A Gini index value above 50 is considered high; countries including Brazil, Colombia, South Africa, Botswana, and Honduras can be found in this category. A Gini index value of 30 or above is considered medium; countries including Vietnam, Mexico, Poland, the United States, Argentina, Russia and Uruguay can be found in this category. A Gini index value lower than 30 is considered low; countries including Austria, Germany, Denmark, Norway, Slovenia, Sweden, and Ukraine can be found in this category.

There are various reasons for economic inequality within societies, including both global market functions such as trade, development, and regulation as well as social factors including gender, race, and education. Economist Thomas Piketty argues that widening economic disparity is an inevitable phenomenon of free market capitalism when the rate of return of capital r is greater than the rate of growth of the economy g.

A major cause of economic inequality within modern market economies is the determination of wages by the market. Where competition is imperfect; information unevenly distributed; opportunities to acquire education and skills unequal; market failure results. Since many such imperfect conditions exist in virtually every market, there is in fact little presumption that markets are in general efficient.

This means that there is an enormous potential role for government to correct such market failures. Another cause is the rate at which income is taxed coupled with the progressivity of the tax system.

A progressive tax is a tax by which the tax rate increases as the taxable base amount increases. Additionally, steeper tax progressivity applied to social spending can result in a more equal distribution of income across the board. An important factor in the creation of inequality is variation in individuals' access to education. As a result, those who are unable to afford an education, or choose not to pursue optional education, generally receive much lower wages.

The justification for this is that a lack of education leads directly to lower incomes, and thus lower aggregate saving and investment.

Conversely, quality education raises incomes and promotes growth because it helps to unleash the productive potential of the poor. John Schmitt and Ben Zipperer of the CEPR point to economic liberalism and the reduction of business regulation along with the decline of union membership as one of the causes of economic inequality. In an analysis of the effects of intensive Anglo-American liberal policies in comparison to continental European liberalism, where unions have remained strong, they concluded "The U.

At the same time, the available evidence provides little support for the view that U. Despite popular prejudices to the contrary, the U. More recently, the International Monetary Fund has published studies which found that the decline of unionization in many advanced economies and the establishment of neoliberal economics have fueled rising income inequality. The growth in importance of information technology has been credited with increasing income inequality.

Countries with high invention rates — "as measured by patent applications filed under the Patent Cooperation Treaty" — exhibit lower inequality than those with less. Trade liberalization may shift economic inequality from a global to a domestic scale. Trade economist Paul Krugman estimates that trade liberalisation has had a measurable effect on the rising inequality in the United States. He attributes this trend to increased trade with poor countries and the fragmentation of the means of production , resulting in low skilled jobs becoming more tradeable.

Anthropologist Jason Hickel contends that globalization and " structural adjustment " set off the " race to the bottom ", a significant driver of surging global inequality. Another driver Hickel mentions is the debt system which advanced the need for structural adjustment in the first place. In many countries, there is a gender pay gap in favor of males in the labor market. Several factors other than discrimination contribute to this gap. On average, women are more likely than men to consider factors other than pay when looking for work, and may be less willing to travel or relocate.

Census's report stated that in US once other factors are accounted for there is still a difference in earnings between women and men. There is also a globally recognized disparity in the wealth, income, and economic welfare of people of different races. In many nations, data exists to suggest that members of certain racial demographics experience lower wages, fewer opportunities for career and educational advancement, and intergenerational wealth gaps.

As a result, they are often segregated either by government policy or social stratification, leading to ethnic communities that experience widespread gaps in wealth and aid. As a general rule, races which have been historically and systematically colonized typically indigenous ethnicities continue to experience lower levels of financial stability in the present day. The global South is considered to be particularly victimized by this phenomenon, though the exact socioeconomic manifestations change across different regions.

Even in economically developed societies with high levels of modernization such as may be found in Western Europe, North America, and Australia, minority ethnic groups and immigrant populations in particular experience financial discrimination. While the progression of civil rights movements and justice reform has improved access to education and other economic opportunities in politically advanced nations, racial income and wealth disparity still prove significant. In the countries of the Caribbean, Central America, and South America, many ethnicities continue to deal with the effects fo European colonization, and in general nonwhites tend to be noticeably poorer than whites in this region.

In many countries with significant populations of indigenous races and those of Afro-descent such as Mexico, Colombia, Chile, etc. This region of the world, apart from urbanizing areas like Brazil and Costa Rica, continues to be understudied and often the racial disparity is denied by Latin Americans who consider themselves to be living in post-racial and post-colonial societies far removed from intense social and economic stratification despite the evidence to the contrary.

African countries, too, continue to deal with the effects of the Trans-Atlantic Slave Trade , which set back economic development as a whole for blacks of African citizenship more than any other region. The degree to which colonizers stratified their holdings on the continent on the basis of race has had a direct correlation in the magnitude of disparity experienced by nonwhites in the nations that eventually rose from their colonial status.

Former French colonies, for example, see much higher rates of income inequality between whites and nonwhites as a result of the rigid hierarchy imposed by the French who lived in Africa at the time. The economic status of one's parents continues to define and predict the financial futures of African and minority ethnic groups.

Asian regions and countries such as China, the Middle East, and Central Asia have been vastly understudied in terms of racial disparity, but even here the effects of Western colonization provide similar results to those found in other parts of the globe. While the disparity is greatly improving in the case of India, there still exists social stratification between peoples of lighter and darker skin tones that cumulatively result in income and wealth inequality, manifesting in many of the same poverty traps seen elsewhere.

Economist Simon Kuznets argued that levels of economic inequality are in large part the result of stages of development. According to Kuznets, countries with low levels of development have relatively equal distributions of wealth.

As a country develops, it acquires more capital, which leads to the owners of this capital having more wealth and income and introducing inequality. Eventually, through various possible redistribution mechanisms such as social welfare programs, more developed countries move back to lower levels of inequality.

Andranik Tangian argues that the growing productivity due to advanced technologies results in increasing wages' purchase power for most commodities, which enables employers underpay workers in "labor equivalents", maintaining nevertheless an impression of fair pay.

This illusion is dismanteled by the wages' decreasing purchase power for the commodities with a significant share of hand labor. This difference between the appropriate and factual pay goes to enterprise owners and top earners, increasing the inequality.

Wealth concentration is the process by which, under certain conditions, newly created wealth concentrates in the possession of already-wealthy individuals or entities. Accordingly, those who already hold wealth have the means to invest in new sources of creating wealth or to otherwise leverage the accumulation of wealth, and thus they are the beneficiaries of the new wealth. Over time, wealth concentration can significantly contribute to the persistence of inequality within society.

Thomas Piketty in his book Capital in the Twenty-First Century argues that the fundamental force for divergence is the usually greater return of capital r than economic growth g , and that larger fortunes generate higher returns. Economist Joseph Stiglitz argues that rather than explaining concentrations of wealth and income, market forces should serve as a brake on such concentration, which may better be explained by the non-market force known as " rent-seeking ".

While the market will bid up compensation for rare and desired skills to reward wealth creation, greater productivity, etc. This process, known to economists as rent-seeking , brings income not from creation of wealth but from "grabbing a larger share of the wealth that would otherwise have been produced without their effort" [86].

Jamie Galbraith argues that countries with larger financial sectors have greater inequality, and the link is not an accident. A study published in PNAS found that global warming plays a role in increasing economic inequality between countries, boosting economic growth in developed countries while hampering such growth in developing nations of the Global South. Inger Andersen , in the foreword to the report, said "this elite will need to reduce their footprint by a factor of 30 to stay in line with the Paris Agreement targets.

Countries with a left-leaning legislature generally have lower levels of inequality. The relative merits and effectiveness of each approach is a subject of debate. Typical government initiatives to reduce economic inequality include:. Market forces outside of government intervention that can reduce economic inequality include:.

Research shows that since , the only periods with significant declines in wealth inequality in Europe were the Black Death and the two World Wars. A lot of research has been done about the effects of economic inequality on different aspects in society:. According to Christina Starmans et al. Nature Hum.

In all studies analyzed, the subjects preferred fair distributions to equal distributions, in both laboratory and real-world situations. In public, researchers may loosely speak of equality instead of fairness, when referring to studies where fairness happens to coincide with equality, but in many studies fairness is carefully separated from equality and the results are univocal.

Already very young children seem to prefer fairness over equality. When people were asked, what would be the wealth of each quintile in their ideal society, they gave a fold sum to the richest quintile than to the poorest quintile. The preference for inequality increases in adolescence, and so do the capabilities to favor fortune, effort and ability in the distribution.

Economic inequality

Metrics details. Financial inclusion is a key element of social inclusion, particularly useful in combating poverty and income inequality by opening blocked advancement opportunities for disadvantaged segments of the population. This study intends to investigate the impact of financial inclusion on reducing poverty and income inequality, and the determinants and conditional effects thereof in developing countries. The analysis is carried out using an unbalanced annual panel data for the period of — For this purpose, we construct a novel index of financial inclusion using a broad set of financial sector outreach indicators, finding that per capita income, ratio of internet users, age dependency ratio, inflation, and income inequality significantly influence the level of financial inclusion in developing countries. Furthermore, the results provide robust evidence that financial inclusion significantly reduces poverty rates and income inequality in developing countries. Financial inclusion connotes all initiatives that make formal financial services accessible and affordable, primarily to low-income people.

data for macroeconomic variables while the Gini index was collected from the World Income Inequality. Database. In addition to the macroeconomic factors, the​.

Looking for other ways to read this?

This paper aims to explore the quality of economic growth in a sample of 50 emerging and transition economies ETEs , which are countries experiencing a process of fast growth and institutional change. Economic growth during — is regressed against poverty, inequality and human development variables using OLS cross-country regression models. The main findings are that growth did not reduce poverty and income inequality worsened too.



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The second chapter deals with the impact poverty has on economic growth while the third and fourth investigate how inequality influences aggregate outcomes.


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