Why economic inequality matters for development

DOES economic inequality matter for development? That's a question we discussed at a recent event with international experts and practitioners. Among them was our Chief Economist Indermit Gill, who responded: "How can it not? If you look at the aspects of inequality—you can talk about the inequality of opportunity, of income, of wealth, and of power—it matters a lot. It can really hurt development, if it's too high or unmanageable. But then, the real question is, what do you do about it? And is the cure often worse than the disease?

- BY LUIS FELIPE LÓPEZ-CALVA, DEON FILMER AND HAISHAN FU

High economic inequality in a country can limit people's ability to move up the socioeconomic ladder, and thereby slow progress toward broad-based growth and poverty eradication. Decreasing high levels of inequality, on the other hand, can spur economic development, strengthen human capital, and speed up poverty reduction.

We know that tackling economic inequality is essential for boosting shared prosperity and achieving key development goals. But when does inequality become too high? What policy solutions are most effective?

To effectively address inequality, we first need to measure it accurately. The World Bank's Poverty and Inequality Platform provides Gini index estimates—a measure of how equally (or unequally) income or consumption is distributed among a population—for 172 countries, covering about 98 percent of the world's population. This valuable tool helps assess the level of economic inequality in these countries. One reason we chose the Gini index is because of its long history of use and familiarity to a broader audience.