A caveat is that some social spending might not be targeted at reducing income inequality, but rather at pursuing other social goals. Those public expenditures are considered productive which are included as arguments in the private production function and thereby affect the steady-state rate of growth. Within this classification, productive public expenditures include general public services, defence, education, health, housing, transport and communication, while unproductive sasol ltd expenditures include social security and welfare expenditure, recreation and economic services. The lack of progress on child poverty here is deeply worrying and shows the need for a step change in the scale of ambition needed in the forthcoming Child Poverty Strategy, so it succeeds in ‘driving down child poverty’, and these disappointing conditional scenario outcomes do not come to pass.

Annex A: Methodology and scenario details

In contrast, its effect on saving rate is insignificant in all estimates similar to Odedokun and Round (2004). The underdeveloped financial https://www.liberty.co.za/ systems in low-income countries may also be the cause of the negative effect (Braun et al., 2019). Therefore, evidence of the validity of these positive channels in these countries cannot be obtained. In addition, the coefficients of the GDP per capita variable used in the estimation of all channels have the expected sign in almost all of them and are significant.

Literature Review

The IMF has weighed in with a discussion on the role of income distribution as a cause and consequence of economic growth (see, for example, Ostry et al. 2014). There are also some works that can rationalise the diverging empirical results and theoretical predictions on the relationship between income inequality and economic growth (or economic efficiency). For example, Anderson and Maibom, 2016 find that countries that are at the frontier of economic performance and income equality face a trade-off between efficiency and equity, but most countries are below the frontier and therefore they can improve both. Aghion et al., 2015 find a significant positive correlation between top income inequality and growth in those US states which are close to the most productive US state (‘frontier growth’), but negative correlation between top income inequality and non-frontier growth. Our analysis suggests that https://www.absa.co.za/ without further policy changes, headline poverty (relative poverty, after housing costs using the usual 60% of median income poverty line) is likely to remain largely unaffected by economic growth.

• This finding supports many studies in the empirical literature, as stated in the section discussing the results for LLMC.
• Against low-income families who do not have the resources to finance their investments, the existence of rich people, who can realise their risky projects, will increase the total savings rate and contribute to economic growth.
• According to this view, known as the classical approach, the marginal propensity to save increases as wealth increases.
• In addition, Also, a remarkable result here is that the effect of fertility on economic growth is significantly lower than LLMC.

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While inequality does not affect redistribution in low-income countries, it positively affects developed countries. The inadequacy of democratic institutions in low-income countries can be considered one of their main problems, so achieving redistribution in these countries can be relatively difficult. Therefore, structural reforms should be implemented in these countries for the institutions that will provide democratic rights and freedoms and at the same time control the effective use of these rights and freedoms. Also, in these countries with low financial development, it may not be possible to collect taxes effectively and direct them to economic activities.

Social mobility and inequality: New evidence from Imperial China

This column argues that greater income inequality raises the economic growth of poor countries and decreases the growth of high- and middle-income countries. Human capital accumulation is an important channel through which income inequality affects growth. Over the past few years private consumption has risen at a slower pace than real disposable income.1 Chart A illustrates the diverging paths of real income and private consumption during the sasol fuel last three years. According to the national accounts, real household income increased by 3.8% between the second quarter of 2022 and the second quarter of 2024.