Objectives. The study seeks to provide comparative global evidence on the role of income inequality, relative to income growth, in poverty reduction.
Methods. An analysis-of-covariance model is estimated using a large global sample of 1980–2004 unbalanced panel data, with the headcount measure of poverty as the dependent variable, and the Gini coefficient and PPP-adjusted mean income as explanatory variables. Both random-effects and fixed-effects methods are employed in the estimation.
Results. The responsiveness of poverty to income is a decreasing function of inequality, and the inequality elasticity of poverty is actually larger than the income elasticity of poverty. Furthermore, there is a large variation across regions (and countries) in the relative effects of inequality on poverty.
Conclusion. Income distribution plays a more important role than might be traditionally acknowledged in poverty reduction, though this importance varies widely across regions and countries.