In the past decade many low- and middle-income countries have successfully cut their levels of poverty and income inequality. These countries have shown that it’s possible to reduce inequality under widely different circumstances and contextual factors not under their control have played a substantial role in enabling their progress against inequality. The countries analyzed are – Brazil, Cambodia, Mali, Peru, and Tanzania.
· Brazil’s rising minimum wage and expanding safety net programs have accounted for 80 percent of the decline in inequality.
- Before the outbreak of conflict, Mali’s high cereal production helped raise farm production and off-farm labor income resulting in reduced inequality.
- Boosted by prudent macroeconomic policies and high commodity prices, Peru’s labor market, which closed the wage gap between formal and inform workers and provided higher participation rates, was the main driver for the country translating higher growth into reducing inequality and poverty.
- Cambodia’s diversification of the economy from agriculture into light manufacturing opened labor opportunities for the poor.
- Tanzania’s commitment to policies explicitly aimed at rendering income distribution more equitable and a surge in retail trade and manufacturing, which has allowed the inclusion of less well skilled workers into the economy, have contributed to the progress in reducing poverty.
When we analyze the drivers of inequality reduction, we find several constants including strong growth, good macroeconomic management, and well-functioning labor markets that create jobs and enable the poorest to take advantage of the available opportunities.
Many effective policy options exist for countries that decide to tackle inequality. Evidence points to six high-impact strategies that have helped reduce inequality and poverty, and so have contributed to better opportunities and stronger growth in a number of contexts.
- 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
Some of these measures can rapidly affect income inequality while others deliver benefits more gradually. However, these policies have worked repeatedly in different settings around the world and credible versions of some are within the financial and technical reach of virtually all countries.