Box 1 Asset Inequality
Further evidence in the studies cited suggests that income inequality
acts as a proxy for asset inequality. When including measures of
asset distribution, such as land and human capital, the relationship
between income distribution and growth disappears. Asset
distribution, however, has a clear negative effect on economic growth
and the effects are almost twice as large for the poor than for the
rest of the population (see, for example, Deininger and Olinto, 2000;
and, Birdsall and Londono, 1997). Complementarities between
growth and progressive redistribution are particularly strong where
credit and insurance markets do not function perfectly (see Box 2 of
this briefing paper; and, Kanbur and Lustig, 1999).
The importance of asset distribution for poverty reduction also
highlights the need to avoid crises, if possible, and prioritising crisis
responses when they do occur. Instability and crises increase the level
of inequality of income as well as assets. Evidence from Latin America
during the 1970s and 1980s suggests that rises in inequality during
recessions are not eliminated by subsequent recoveries.