At the World Bank, the importance of addressing high inequality levels to achieving the vision of poverty elimination has been increasingly recognized over the past decades. Starting with the 1990 World Development Report (WDR) on poverty, various World Bank Group flagship studies and strategy documents have recognized that high levels of inequality can be an obstacle to sustained poverty reduction.
The 1990 World Development Report Poverty argues that this is especially relevant in some of the most highly unequal countries in Latin America and the Caribbean. This and many other World Bank publications have increasingly emphasized that although poverty alleviation requires growth, growth is not enough: growth must be broad-based and labor-intensive, and it must be coupled with efforts to improve the targeting and effectiveness of basic social expenditures.
The 2000/01 World Development Report Attacking Poverty, for example, concludes that attaining the international development goals will require actions not only to spur economic growth but also to reduce income inequality and make progress in two other important fronts: facilitating empowerment by developing sound and responsive public sector institutions, and enhancing security by reducing the poor’s vulnerability to various external shocks.Many of these issues were revisited in depth in the Equity and Development 2006 World Development Report
The World Bank Group has recognized the importance of avoiding growing levels of inequality to achievement of the twin goals; however, it has stopped short of considering inequality reduction a goal in itself. Continued increases in inequality, as observed in some of the larger developing countries in recent years, imply that attaining the global poverty eradication target would require growth rates that are higher than what has been historically observed.
The World Bank has thus recognized that to make progress toward the first twin goal, countries will have to implement policies and reform institutions so as to limit increases in inequality. Similarly, official World Bank documents have explicitly stated that sustained progress in achieving the second twin goal is incompatible with a steady increase in inequality. However, the World Bank has also noted that promoting shared prosperity does not necessarily imply reducing inequality in all countries at every point of time. In the event, in 2013, the World Bank Group has adopted the shared prosperity goal that defines it as growth of real income of the bottom 40 percent. While this measure is a growth and not an inequality measure, it has strengthened the Bank’s focus on inclusive growth, the bottom income deciles, and the broad development agenda that includes inequality.
See Chapter 1: Introduction.