We know that fiscal policy can be harnessed to reduce inequality in low- and middle-income countries, but until now, we knew less about its ability to reduce poverty. Our recent volume looks at the revenue and spending of governments across eight low and middle income countries (Armenia, Ethiopia, Georgia, Indonesia, Jordan, Russia, South Africa and Sri Lanka), and it reveals that fiscal systems, while nearly always reducing inequality, can often worsen poverty.
Global economic growth is accelerating. After registering the slowest pace since the 2007-2009 financial crisis in 2016, global growth is expected to rise to a 2.7 percent pace this year and 2.9 percent over 2018-19.
While much has been said about better economic news from the major advanced economies, the seven largest emerging market economies—call them the Emerging Market Seven, or EM7 – have been the main drivers of this anticipated pickup.
The contribution of the seven largest emerging market economies to global output has climbed substantially over the last quarter century.
The EM7 -- Brazil, China, India, Indonesia, Mexico, Russia and Turkey – accounted for 24 percent of global economic output over 2010-2016, up from 14 percent in 1990s. Although this is a smaller share than the Group of Seven major industrialized economies, the G7’s portion of global economic output has narrowed to 48 percent from 60 percent over the same time frame.
When people spend money, their decisions are often influenced by the desire to signal wealth and attain social status. This insight is not entirely new – even Adam Smith, in the Wealth of Nations, complains that his contemporaries spend too much on “status goods” that are not a necessity of life, and which they most likely can’t afford.
Social signaling motives in consumption seem to be present in many different economic settings, and may in fact be so widespread that they can be linked to larger economic phenomena, such as inequality and persistent poverty. Studies using household surveys show, for example, that the poor around the world spend a strikingly large share of their income on visible expenditures, which may have negative implications for asset accumulation, household indebtedness, and investments in education.The same pattern has been shown to hold for ethnic minorities in the Unites States – so much so, that a recent study argues that differences in conspicuous consumption may account for as much as one third of the wealth gap between Whites and African Americans
The potentially deleterious effects of gender disparities on growth and poverty reduction have been receiving progressively more policy attention (reflected, for instance, in the inclusion of the promotion of gender parity amongst the Millennium Development Goals and the 2012 World Development Report). Inequities in labor market opportunities are of particular concern since labor earnings are the most important source of income for the poor in the vast majority of developing countries.
Although the vast majority of the poor live in rural areas and rural non-farm enterprises account for about 35-50% of rural income and roughly a third of rural employment in developing countries, relatively little is known about gender inequities in rural non-agricultural labor market outcomes due to data-limitations. This is unfortunate given the proliferation and diversification of rural non-farm activities and their potential to alleviate poverty, especially in countries where the importance of agriculture as an employer is likely to diminish.