Policies to alleviate poverty and redistribute income: promoting economic growth

Economic Development – Poverty

Objective

To understand the policies that can alleviate poverty and redistribute income by promoting economic growth.

1. What is Poverty?

Poverty is the condition in which individuals or groups lack the resources to meet basic needs such as food, shelter, health care and education. It can be measured in two main ways:

• Absolute poverty – living below a fixed income threshold (e.g., $1.90 per day).
• Relative poverty – living significantly below the average standard of living in a society.

2. Why Does Poverty Persist?

1. Insufficient economic growth.
2. Unequal distribution of income and wealth.
3. Limited access to education and health services.
4. Structural problems such as low productivity and poor infrastructure.
5. Political instability and weak institutions.

3. Policies to Alleviate Poverty

Policies can be grouped into two broad categories: growth‑oriented policies and redistributive policies. Both aim to raise the standard of living of the poorest groups.

3.1 Growth‑Oriented Policies

These policies seek to increase the overall size of the economy (GDP) so that more resources become available for all.

• Investment in physical capital – building roads, ports, electricity networks.
• Human capital development – expanding access to quality education and vocational training.
• Macroeconomic stability – low inflation, sustainable public finances, stable exchange rates.
• Trade liberalisation – reducing tariffs and non‑tariff barriers to encourage export‑led growth.
• Technology adoption – encouraging research & development and diffusion of new technologies.

3.2 Redistributive Policies

These policies directly target the income and wealth gap.

• Progressive taxation – higher tax rates on higher incomes.
• Social safety nets – cash transfers, unemployment benefits, food subsidies.
• Public provision of services – free or heavily subsidised health care and education.
• Minimum wage legislation – setting a floor for wages to protect low‑skill workers.
• Land reform – redistributing land to smallholder farmers.

4. How Economic Growth Reduces Poverty

Economic growth can lower poverty through two main channels:

1. Job creation – expanding the labour market increases employment opportunities for the poor.
2. Higher incomes – growth raises average wages and profits, which can lift households above the poverty line.

In mathematical terms, if \$Y\$ denotes national income and \$N\$ the number of people, per‑capita income is \$y = \frac{Y}{N}\$. An increase in \$Y\$ while \$N\$ grows more slowly raises \$y\$, potentially moving more people out of poverty.

5. Evaluating the Effectiveness of Policies

When assessing any policy, consider the following criteria:

• Efficiency – does the policy achieve the desired outcome with minimal waste of resources?
• Equity – does it fairly target the poorest groups?
• Administrative feasibility – can the government implement and monitor it effectively?
• Fiscal sustainability – can the policy be financed without creating large deficits?

6. Summary Table of Key Policies

7. Suggested Diagram

8. Concluding Remarks

Promoting sustained, inclusive economic growth combined with well‑targeted redistributive measures offers the most effective route to reducing poverty. Policymakers must balance growth‑enhancing reforms with social protection to ensure that the benefits of development reach the poorest segments of society.