Inequality and Shared Prosperity

Promoting shared prosperity is one of the goals of the World Bank Group, along with ending extreme poverty on a livable planet. It means increasing the incomes and welfare of the bottom 40 percent of society wherever they are, be it in the poorest of nations or thriving middle-income countries.

As developing countries grow their economies and lift millions out of poverty, they may also experience growing inequality. We now know that nations with a widening gap between those who can and cannot access opportunities in life have difficulty sustaining economic growth and social stability over time. To date, no country has managed to transition beyond middle-income status while maintaining high levels of inequality. Reducing inequality today matters for opportunity and mobility tomorrow.

Without significantly reducing inequality, the world will not meet the goal of ending extreme poverty on a livable planet. While living standards of the bottom 40 percent in countries all over the world have improved, the latest data show the picture is mixed at best. Out of 91 economies for which data was available for 2012-2017, 74 had positive shared prosperity, meaning that growth was inclusive and the incomes of the poorest 40 percent of the population increased. 53 had a positive shared prosperity premium, meaning that growth benefited the poorest more than the entire population. Average global shared prosperity (growth in the incomes of the bottom 40 percent) was 2.3 percent for 2012-2017. But the gains are uneven: Shared prosperity and shared prosperity premiums — the difference in growth rates between the bottom 40 and the overall average — are lower on average in fragile and low-income economies than in middle-income economies.

Following the onset of the COVID-19 pandemic, diverging economic recovery paths caused inequality between countries to increase for the first time in a generation. Emerging evidence indicates that inequality within countries may also have worsened – surveys in 2021 showed that poorer households lost incomes and jobs at slightly higher rates than richer households, a trend that contributes to the worsening of global poverty and inequality.

Climate change is deeply intertwined with inequality. The poorest and most vulnerable people contribute the least to greenhouse gas emissions and the climate crisis, but they bear the brunt of its impacts. As a results, millions of people are vulnerable to extreme weather events, natural disasters, limited access to nutritious food and clean water, and loss of livelihoods. These challenges are particularly acute for households headed by women, children, persons with disabilities, Indigenous Peoples, displaced persons, the elderly, and other marginalized groups.

Last Updated: Dec 14, 2023

To reduce inequality and promote shared prosperity, progress must be sustained over time and across generations. Progress over the past few decades shows us that countries can make deliberate policy decisions to combat inequality and improve the lives and opportunities of their poorest citizens. In many cases, this will require fiscal, social, and labor market reforms.

There is not just one way to reduce inequality and promote shared prosperity, yet some common lessons from successful countries and several interventions are proven to help. Countries under widely different circumstances have shown that a combination of good policy choices – sound macroeconomic foundations, sustaining growth, and strong labor markets – and favorable external factors have contributed to progress in reducing inequality.

Six policy areas have shown to be effective in reducing inequality. They offer very few trade-offs between equity and efficiency and have worked in different settings around the world:

• Early childhood development and nutrition interventions 
• Universal health coverage 
• Universal access to quality education 
• Cash transfers to poor families 
• Rural infrastructure – especially roads and electrification 
• Progressive taxation
• Jobs to reduce poverty and inequality

Inequality of opportunity, which reflects differences in circumstances outside an individual’s control, is of special concern. It is both unfair and inefficient, and a key contributor to low social mobility and persistent income inequality. It prevents people from reaching their aspirations and can threaten social cohesion, while also having real consequences for growth and poverty reduction in countries at all levels of development. Too often, inequality is passed down from generation to generation, reducing social mobility.

The World Bank supports governments in fostering more equitable and inclusive societies cuts across all our program areas. It touches on the policy areas listed above, along with others, including gender, governance, and better access to basic services and jobs.

Last Updated: Dec 14, 2023

Here are a few examples of our projects and analyses to help nations become more inclusive:

• Colombia’s Equitable and Green Recovery project, supported by World Bank analysis, is expected to improve the targeting of social transfers, remove barriers faced by women to access economic opportunities, provide a stronger response to the effects of climate change and natural disasters, and help the country protect biodiversity and reduce deforestation.

• Since 2015, a $1.2 billion World Bank program has worked to ensure that Ethiopia’s entire population benefits from basic social services. It uses block grants to regions and woredas (districts) for delivering basic social services in health, education, agriculture, and rural roads, water, and sanitation. The support has achieved notable results in ensuring better access to services and contributed to the country’s impressive gains in basic services.

• The World Bank is supporting Egypt’s reform program, which focuses on creating opportunities for Egyptians and raising living standards by promoting the private sector and improving government performance. The program will help finance the government’s own economic development program, “Egypt Takes Off,” with a focus on promoting small businesses while improving the capacities of local governments to deliver services to their citizens and guide local development.

• In Kosovo, access to services and economic opportunities for Roma communities is quite low, according to a World Bank report. By providing Roma with the same opportunities available to the general population, Kosovo can attain important fiscal gains.

• One in four Latin Americans identify themselves as people of African descent. Even though there have been significant gains over the past decade, Afro-descendants still are overrepresented among the poor. A new World Bank report aimed to deepen the understanding of the drivers behind the persistent exclusion of the Afro-descendants and improve opportunities and access to services and markets for excluded groups in ways that respect their views and aspirations.

• In Tanzania, while there is a large pool of well-trained researchers, few are engaged in policy analysis that ensures high-quality evidence is available for public policy debates. Tanzania's Labour Force Survey, Agricultural Sample Census, National Panel Survey, and existing micro-data, all offer a unique opportunity to boost high-quality policy analysis and strengthen research-policy. The World Bank, in collaboration with the National Bureau of Statistics, has launched a new initiative to enhance the policy analysis capacity of local researchers where 700+ officials were trained with 40% female participation.

• A World Bank study looked at the potential for job generation in Argentina and the short-term impacts of infrastructure and its sub-sectors, which could help inform infrastructure investment decisions.This study represents a step forward in speeding up efforts to reduce poverty. Further analysis can help better understand the potential of infrastructure investments to generate long-term economic growth.

Last Updated: Dec 14, 2023