Essay 6: Why Is Redistribution Important?

54 | Revisiting Targeting in Social Assistance

Thus, equity and efficiency objectives are aligned. Focusing resources on the poor(er) helps to improve equity. It also helps to improve human capital efficiently.

Essay 6: Why Is Redistribution Important?

Distribution has intrinsic importance, and some sense of fairness is a basic part of the social contract, especially when individuals can do little about the sources of inequality. The intrinsic value of fairness and equity is so well accepted that arguments to support it are not repeated here (World Bank 2006, chapter 4). The breadth of support is crystallized in Sustainable Development Goal 10—to reduce inequality among and within nations. This could be called the intrinsic case for concern about inequality. There are also instrumental reasons for redistribution.

A first instrumental reason to focus on inequality is because at normal or likely rates, growth alone in many places is insufficient to reach poverty reduction goals. Calculations showing how different combinations of growth and inequality will affect poverty have a long history and can be done at the aggregate or national level (for example, ECLAC [2002] for Latin America; Yemtsov et al. [2019] for the Russian Federation). Moreover, as countries become less poor, inequality-reducing policies are likely to become relatively more effective for poverty reduction than growthpromoting policies (Olinto, Lara Ibarra, and Saavedra-Chanduvi 2014). The World Bank’s pre-COVID-19 flagship report on Poverty and Shared Prosperity calculated that even if the world had grown at twice its historical rate, it would not have been enough to meet the goal of 3 percent extreme poverty ($1.90/day) by 2030 (World Bank 2018a). Much more pro-poor growth or redistribution would have been needed to bring the goal into sight.

Post-COVID-19, the challenges for poverty reduction and inequality loom larger. The World Bank’s post-COVID-19 flagship report on Poverty and Shared Prosperity estimates the biggest increase in poverty in decades and expects a significant increase in inequality, although it does not produce a headline number (World Bank 2020b). The COVID-19 shock caused the greatest learning losses in poorer countries and among poorer children, and higher reductions in work among low-wage earners, youth, and women (IMF 2021; World Bank 2021b). Without strong interventions, the crisis may trigger cycles of higher income inequality, lower social mobility among the vulnerable, and lower resilience to future shocks. IMF (2021) demonstrates that inequality is rising in many advanced and large middleincome countries, comprising about two-thirds of the world’s population, although it is falling from high rates in some others.