Improving the Evidence Base for Understanding the Links between Inequalities and Poverty

CASE is collaborating with the LSE's International Inequalities Institute to lead a three-year programme of research on the connections between inequality and poverty. This programme Improving the Evidence Base for Understanding the Links between Inequalities and Poverty is funded by the Joseph Rowntree Foundation .

An understanding that poverty and inequality are inextricably linked has given rise to a number of large international organisations (World Bank; UN; WEF; Oxfam) setting joint inequality-poverty reduction targets on the basis that poverty cannot be seriously tackled without addressing inequality. However, the evidence base was relatively weak with only limited information available on the relationship between the two phenomena.  This project is specifically designed to expand the evidence base on the links between inequality and poverty and to fill this knowledge gap.  In this programme of research we are exploring the relationship between inequality and poverty by:

(a) examining philosophical concerns for poverty and inequality and how they may overlap

(b) estimating the empirical relationship between income inequality and a variety of poverty measures

(c) reviewing the existing evidence base on potential mechanisms that may drive any relationship

(d) conducting case study research to explore in more detail one of the key mechanisms identified in the evidence reviews

(e) investigating potential policy options.

Here we review some of the conceptual issues and existing evidence alongside emerging findings from this research with links to published discussion papers and presentations.

Irene Bucelli has been reviewing different philosophical positions and theories that underlie concerns about poverty and inequality and explores the extent to which these are compatible and can, in fact, overlap.  Her paper Inequality, poverty and the grounds of our normative concerns, the first in our discussion paper series, concludes that it is possible to argue that our concerns with poverty and inequality are not mutually exclusive and that a ‘pluralist’ view can incorporate different justifications for being concerned about both.

Lin Yang reviewed the different concepts and measures of inequality and poverty in her paper The relationship between poverty and inequality: concepts and measures.  This highlighted how some measures are likely to lead to a higher empirical correlation between the two phenomena for mathematical reasons and provided a strong basis for our empirical studies.

Eleni Karagiannaki carried out an extensive examination of the empirical cross-country relationship between income inequality and income poverty.  Her research shows that higher income inequality (measured in a variety of ways) is associated with higher income poverty across countries and that there exists a positive relationship between changes in income inequality over time and changes in relative income poverty.  The findings from this research can be found in her paper The empirical relationship between income inequality and income poverty in rich and middle income countries.

There may be some concern about the circularity in looking at the relationship between income inequality and income poverty, so Lin Yang and Polly Vizard investigated the relationship between income inequality and three further measures of poverty (material deprivation, a multi-dimensional poverty index and a capability-based multi-dimensional measure of poverty.  In their paper Multidimensional poverty and income inequality in the EU: An adjusted headcount approach they provide evidence that the positive correlation between inequality and poverty is not limited to income measures of poverty, and holds after controlling for a range of micro-level and macro-level variables.

The next phase of our work involves examining the evidence on a number of potential mechanisms that theory and evidence suggest drive the positive empirical relationship. Such as:

• Economic mechanisms: fundamental drivers such as resource constraints and the inequality-growth-poverty triangle (higher inequality stifling growth and therefore ability to reduce poverty or, conversely, inequality generating growth and increasing the capacity to tackle poverty). 
• Political mechanisms: where command over economic resources is linked to political power inequality which can result in resistance against policies (such as redistribution or poverty reduction programmes) that threaten the economic position of the rich and powerful.
• Social and cultural: unequal societies are also often characterised as highly punitive countries with high rates of incarceration. This may be driven by well-off people dominating positions of power including the judiciary. For some groups it appears that poverty acts as a ‘pipeline to prison’ and a vicious cycle ensues.

We are also exploring how dynamic mechanisms may help to shape the relationship between inequality and poverty. For example, through the relationship between higher inequality and lower mobility (cross-sectional and intergenerational) making it harder to escape poverty. Discussion papers examining the evidence on mechanisms will be published shortly.

The project has lead to the creation of an online policy toolkit that provides a systematic, wide-ranging and accessible assessment of a variety of policies with a potential 'double dividend': policies that could lead to reductions in both poverty and inequality. The toolkit has been designed to be a useful aid to anyone interested in policies which reduce poverty and inequality and in particular policies with the potential to have a ‘double dividend’. It has been created with a wide audience in mind, including practitioners, policy-makers, academics and students. You can find out more at our policy toolkit website.