Economic Growth, Social Policy, and Poverty

Abstract

Whether economic growth or social policy does more to benefit the poor is the subject of longstanding interest and debate. I examine the experiences of the world's affluent countries during a period of two and a half decades for which reliable comparative data are available. Over this period, from 1980 to 2005, improvements in low-end (tenth-percentile) absolute incomes were driven chiefly by increases in GDP per capita rather than by increases in the share of GDP going to government social expenditures. Economic growth did not, however, always and everywhere translate into income growth for the poor. Some rich nations — Australia, Canada, Germany, Italy, Switzerland, the United Kingdom (1980-95), and the United States (1980-95 and 2000-05) — experienced lengthy periods of economic growth with little or no rise in the incomes of low-end households. When growth has trickled down to the poor, government transfers have been the principal conduit. It is in countries that have increased transfers in concert with per capita GDP that the incomes of the poor have been most likely to rise.