Income Inequality and Poverty

Income inequality and its distribution are now common phenomena. Many economists now work on it. The income inequality is sharp in lower income countries than middle or higher income countries. Again the income range of low-income countries also very few than other countries.

However, income inequality and poverty are closely related with each other. Inequality creates poverty. Here is proved this statement in two perspectives.

• Inequality and Inequity
• Empirical evidence

Inequality and Inequity: Philip B. Coulter defines "inequality" as a special case of "inequity". If I understand Coulter correctly, then

• Inequity is the deviation of an observed distribution from any defined reference distribution.

• Inequality is an inequity for which the reference distribution is defined by A_i/E_i=A_i+1/E_i+1, that is, all shares are evenly distributed.

In case that inequality is a relative measure, then inequality = 1-equality. As for equal distribution within a group, all members receive the same share. Equities, however, are shared based on the (perceived) value of the receiving individuals. The values of the group members may be determined by merit.

However, if the income share is not equal in any country then it occurs the following situations.

Relation of income inequality and poverty:

• Income inequality.
• Inequity in the society.
• Create poverty.
  

Inequality and Inequity: Empirical Evidence: For empirical evidence here is considering some matters. These are –

• GNP per capita, rate of poverty (%) and share of income groups of a country and here the considering country is Bangladesh;  
• The situations are taken for two decades for finding average trends.

Table: Relation of income inequality and poverty

Year	Share of income groups (%)	GNP ($)	Rate of poverty (%)
1970-80	45% share of top 20%. 25% share of middle 40%. 30% share of bottom 40%	150	60
1980-90	40% share of top 20%. 25% share of middle 40%. 35% share of bottom 40%	350	35.6

Source: Report on Rural Development in CIRDAP member countries, pp 36-63.

So, from the table it is cleared that for a negligible change of income share a gulf of difference is occurred in poverty situation and GNP per capita.