On the Unequal Inequality of Poor Communities

Abstract

Important differences exist between communities with respect to their needs, capacities and circumstances. As central governments are not able to discern these differences fully, they seek to achieve their policy objectives by relying on decentralized mechanisms that utilize local information. However, household and individual characteristics within communities can also vary substantially. A growing theoretical literature suggests that inequality within communities can influence policy outcomes, and that this influence could be harmful or helpful, depending on the circumstances. Empirical investigations into the impact of inequality have, to date, been held largely back by a lack of systematic evidence on community-level inequality. This paper uses household survey and population census data to estimate per capita consumption inequality within communities in three developing countries. Communities are found to vary markedly from one another in terms of the degree of inequality they exhibit. We also show that there should be no presumption that inequality is less severe in poor communities. We argue that the kind of community-level inequality estimates generated in this paper can be utilized in designing and evaluating decentralized antipoverty programs. IntroductionGovernments in developing countries commonly implement decentralized antipoverty programs that are designed to distribute assets or cash to individuals or households.In many such cases, the central government first distributes its poverty reduction budget to communities, and these are then left to decide how to allocate that budget across individuals.Social Funds projects provide a well-known example from the family of community based development (CBD) initiatives, in which poor communities are required to identify, apply for funding, design, implement and manage their projects (Mansuri and Rao, 2003 (2003) provides a recent attempt to proxy local inequality on the basis of easily observed correlates of household income.5 outcomes combining the detailed information available from a household survey with the large-scale representation of the population census. We suggest that meaningful estimates of income or expenditure inequality for small areas can be obtained for many countries on the basis of these techniques. Second, we show that there is great heterogeneity in inequality across these communities in each country. We find that this heterogeneity in local inequality levels is still present when we focus our attention on the poorest communities in rural areas. The combined implication of these findings is that information on local inequality is available for use by program implementers and that this information can help to categorize communities even after conditioning on local poverty and type of area. How Can Local Inequality Affect Welfare Outcomes?Mansuri and Rao ( A detailed case study of the north Indian village of Palanpur provides one illustration of the manner in which local elites are able to appropriate for their own purposes ...

The policy significance of inequality decompositions

“…7 This point is also made in Kanbur [12]. 8 See Akerlof and Kranton [1], Easterly and Levine [7], Collier and Hoeffler [4], Elbers et al [9] and Foster and Sen [10]. 9 This is not the place to get into the large literature on the evolution of ethnicity as a social construct.…”

“…But there is increasing acceptance of the idea that social stability may well depend on these group characteristics, and the tools to think about such issues are now being developed. 8 …”

“…2 See for example, Anand [2], Elbers et al [8], Shorrocks and Wan [16]. 3 For an early discussion on decomposing inequality in Malaysia, see Anand [2].…”

“…4 For a discussion of this, see Kanbur [13]. 5 Data on Madagascar are given in Elbers et al [8]. 6 There is also a technical question of the extent to which the number of groups in any given classification affects the between groups component.…”

Spatial decomposition of inequality

“…This has been done by Elbers et al (2002) for Ecuador, Madagascar and Mozambique and by Cheng (1996) 11 for China. Results from Elbers et al indicate small increases in the between-group component, even if the number of groups increases dramatically.…”