Beyond Piketty: A new perspective on poverty and inequality in India

Abstract

So far most of the literature on poverty and inequality has focused on how overall inequality in income distribution (frequently measured by the Gini coefficient) undermines the 'trickle down' effect. In other words, the higher the inequality in the income distribution, the lower the growth elasticity of poverty. However, with the publication of Piketty's magnum opus in 2014, and a subsequent 2017 study by Chancel and Piketty of evolution of income inequality in India since 1922, the focus has shifted to the income disparity between the richest 1% (or 0.01 %) and the bottom 50%. Their central argument is that the rapid growth of income at the top end of millionaires and billionaires is a byproduct of growth. This study extends this argument by linking it to poverty indices in India. Using the India Human Development Survey 2005-12a nationwide panel surveywe examine the links between poverty and income inequality, especially in the upper tail relative to the bottom 50%, state affluence (measured in per capita income) and their interaction or their joint effect. We also analyse their effects on the FGT class of poverty indices. The results are similar in as much as direction of causality is concerned but the elasticities vary with the poverty index. The growth elasticities are negative and significant for all poverty indices. In all three cases, the disparity between the income share of the top 1% and the share of the bottom 50% is associated with greater poverty. These elasticities are much higher than the (absolute) income elasticities, except in the case of the poverty gap. The largest increase occurs in the poverty gap squared: a 1% greater income disparity is associated with a 1.24% higher value of this index. Thus the consequences of even a small increase in income disparity are alarming for the poorest.

Economic Complexity and Poverty in Developing Countries

“…Meanwhile, many works 3 have shown that lower income inequality can be instrumental in ensuring that economic growth genuinely translates into poverty reduction (e.g., Adams, 2004;Bigsten et al, 2003;Bourguignon, 2003;Fosu, 2009;Kalwij and Verschoor, 2007;Salvatore, 2004;Ravallion, 1997). For example, Kulkarnia and Gaiha (2020) have obtained empirically that in India, the gap between the income share of the top 1% and share of the bottom 50% has resulted in greater poverty. Bigsten et al (2003) have found that the potential poverty reduction effect associated with a rise in real per capita income can be counteracted by the rise in income inequality.…”

“…An extensive literature has shown that these three channels (i.e., economic growth, income inequality and economic growth volatility) can influence poverty rates (e.g., Banerjee et al, 2015;Bhagwati, 2001;Bourguignon, 2004;Datt and Ravallion, 2002;Dollar and Kraay, 2002;Fosu, 2015Fosu, , 2018Perera et al, 2013;Ravallion, 2004). For example, if economic complexity influences positively a country's economic growth (e.g., Hausmann and Hidalgo, 2009), and reduces the prevailing income inequality in this country (e.g., Hartmann et al, 2017), then it can be a potential driver of poverty reduction in that country, in particular if economic growth contributes to lowering poverty rates (e.g., Banerjee et al, 2015;Bhagwati, 2001;Dollar and Kraay, 2002;Fosu, 2015Fosu, , 2018Perera et al, 2013;Ravallion, 2004) and if income inequality is associated with poverty reduction (e.g., Fosu, 2010;Kulkarnia and Gaiha, 2020).…”

Economic complexity and poverty in developing countries

“…Adams, 2004; Bigsten, Kebede, Shimeles, & Taddesse, 2003; Bourguignon, 2003; Fosu, 2009; Kalwij & Verschoor, 2007; Ravallion, 1997; Salvatore, 2004). For example, Kulkarnia and Gaiha (2021) have established empirically that in India the gap between the income share of the top 1 per cent and share of the bottom 50 per cent has resulted in greater poverty. Bigsten et al (2003) have found that the potential poverty reduction effect associated with a rise in real per capita income can be counteracted by the rise in income inequality.…”

“…This would be particularly the case if economic growth contributes to lowering poverty rates 4 and if income inequality is associated with poverty reduction (e.g. Fosu, 2010; Kulkarnia & Gaiha, 2021).…”

Poverty in the Indonesia-Malaysia border province (case study in West Kalimantan Province)

“…It is due to the huge income inequality across regencies/cities in this province and the low quality of institutions and financial development management (Ahmed et al, 2021). Kulkarni & Gaiha (2020) also emphasized that the larger the income disparity, the higher the poverty rate. Therefore, efforts to address inequality should be prioritized before improving economic growth.…”