Addressing income inequalities through development cooperation : a quick guide.
Date: 2022-10-11
Institutions: Directorate-General for International Partnerships
Subjects: cooperation policy, development policy, distribution of wealth, economic indicator, income, poverty, social indicator, social inequality, sustainable development

Addressing Income 
Inequality through 
Development 
Cooperation  : 
A Quick Guide

International 
Partnerships

© European Union, 2022 

Printed in Belgium

Luxembourg: Publications Office of the European Union, 2022

PDF ISBN 978-92-76-57203-9  ISSN 1977-6411  doi:10.2841/209509

1

INTRODUCTION TO INEQUALITY

A. Why inequality matters

Introduction 

The rule of Law at the root of any democratic constitution rests on the idea that every human is 
born  equal  and  is  entitled  to  equal  rights  and  opportunities  in  life.  However,  due  to  failings 
in our social, political and economic organisation, equal rights do not always translate into equal 
opportunities nor into equal outcomes. Working to reduce inequality means to bridge that gap and 
raise everyone’s quality of life, while building sustainable and inclusive societies for all. 

Figure 1 Global income inequality, 1988-2013.

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Within-country inequality      Between-country inequality          Gini index (right axis)      

Source: World Bank (2016), Figure 0.10. Based on Lakner and Milanović (2016), and PovcalNet.

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Contemporary income and wealth inequalities are very large today, about as great as they were in 
the early 20th century. Here are some figures from the World Inequality Report 2022. The richest 
10% of the global population currently takes 52% of global income, whereas the poorest half of the 
population earns 8.5% of it. 

On average, an individual from the top 10% of the global income distribution earns a yearly €87,200, 
whereas an individual from the poorest half of the global income distribution makes €2,800 per year. 
Wealth inequality has also increased at the very top of the distribution, particularly during the pandemic. 
Since 1995, the share of global wealth possessed by billionaires has risen from 1% to over 3%.

The fight against inequality within and between countries is central to the European Union’s strategy 
to achieve the United Nations’ 2030 Agenda for Sustainable Development. Development cooperation 
to help reduce inequality in partner countries is even more crucial now that the COVID-19 pandemic 
may have undone years of progress in some parts of the world. 

1

 1. INTRODUCTION TO INEQUALITY  
 
 
Equality  is  one  of  the  foundations  of  the  EU  social  model  and  this  translates  into  many  of  its 
policies. Tackling inequality is therefore a cross-sectional effort that benefits many policy areas, from 
ensuring equal opportunities and improving outcomes for all, including through the redistribution of 
resources, supporting a more sustainable economy, and protecting people from risks, including those 
associated with climate change. 

Five perspectives on why inequality matters 

There are many reasons why inequality matters. Here are five different perspectives, informed by 
economics and political science:

MORAL STANDPOINT

“EFFICIENCY” PERSPECTIVE

Inequality  can  be  addressed  from  a  moral 
the  Universal 
illustrated  by 
standpoint,  as 
Declaration  of  Human  Rights.  It  is  morally  wrong 
for  there  to  be  too  wide  a  gap  between  rich  and 
poor,  and  between  those  at  the  centre  and  those 
at  the  margins.  It  is  a  moral  and  political  duty  of 
governments to ensure everyone should have equal 
opportunities in life.

The  “Efficiency”  perspective  argues  that  policy 
interventions sometimes face a trade-off between 
efficiency  and  equity.  However,  research  shows 
that even if it often seems more efficient to favour 
those  who  already  fare  well  in  the  short  term, 
more equal firms and communities perform better 
economically.

“POVERTY” PERSPECTIVE 

The  “Poverty”  perspective  sees  inequality  as  an 
obstacle  to  the  elimination  of  global  poverty: 
less inequality means that the benefits of growth 
accrue  more  to  the  poorer  members  of  society. 
resources  are  unequally 
Conversely,  when 
distributed,  investment  favours  the  rich  and  the 
benefits of growth are less likely to reach poor and 
marginalised communities.

“KUZNETS” PERSPECTIVE

The “Kuznets” point of view from economist Simon 
Kuznets, sees inequality as an unavoidable part of 
the  process  of  development.  In  that  perspective, 
inequality is expected to increase in the first stages 
of development and decrease over time. Economists 
have  used  this  tool  to  think  about  how  changes 
in  society  trigger  waves  of  inequality  before 
providing  the  means  to  reduce  them.  However, 
Kuznets predicted these would wane over time in 
richer  societies,  but  the  opposite  has  happened. 
Recent  changes  in  labour  and  technology  might 
have ushered in a new wave of inequality, with no 
waning in sight.

“POLITICAL ECONOMY” PERSPECTIVE

“Political 

Economy” 

perspective 

The 
sees 
inequality as a barrier to growth and a poison for 
democracy.  Elite  capture  of  resources  leads  to 
market  and  government  failure.  Rising  inequality 
means  social  instability  and  eventually  threatens 
what  economists  call  “social  capital”:  the  ability 
of  communities  to  share  common  values  and 
coordinate actions at the local level to improve their 
lives. Inequality also undermines the trust people 
put in governing bodies and policies in general.

2

ADDRESSING INCOME INEQUALITY THROUGH DEVELOPMENT COOPERATION: A QUICK GUIDERationale of SDG 10 and key targets 

Being the world’s largest contributor to development cooperation, the European Union is committed 
to the United Nation’s tenth Sustainable Development Goal (SDG10), “Reduced inequality”, which 
falls under its 2030 Agenda for Sustainable Development. SDG10 has four main targets by 2030. 
First, achieve and sustain income growth of the bottom 40% of the population at a rate higher than 
the national average. Second, empower and promote the social, political and economic inclusion of 
all individuals and identities. Third, ensure equal opportunities and reduce income equality with 
the right policy instruments. And finally, adopt fiscal, wage and social protection policies in order to 
achieve greater equality. 

B. Defining and measuring inequality

Definitions of inequality

Inequality  is  the  unequal  distribution  of  wealth,  rights  and  opportunities.  Unlike  poverty, 
which focuses on those who live under a minimal level of income and living standards (i.e. the 
poverty threshold), inequality refers to differences across the whole population, or between 
and within groups. Inequality and poverty are connected since both are linked to the distribution 
of resources, but low-poverty-rate societies can also be highly unequal. Accordingly, policies to 
reduce poverty can leave inequality unaffected if they are not well calibrated. 

One useful conceptual distinction is between horizontal and vertical inequality.

  Horizontal inequality affects individuals and groups who share an identity in a society, be it a 
similar income, education, gender, ethnicity or birthplace. Women and girls, for instance, face more 
challenges, barriers, violence and discrimination than men, which impedes access to resources 
and  opportunities,  such  as  education,  health  or  the  labour  market.  This  limits  their  autonomy 
and  freedom,  violates  their  human  rights,  and  can  prevent  them  from  benefiting  equally  from 
development cooperation. 

  Vertical  inequality,  on  the  other  hand,  concentrates  on  inequality  between  individuals  (or 
households) in a region, a country or the world. In contrast to the horizontal view – focusing on the 
unequal opportunities that different groups have – vertical inequality points to the gaps between 
individuals. 

More conceptual distinctions exist, such as between economic inequality (the gap between positions 
in the distribution of income) and social inequality (the unequal distribution of public services). The 
focus of this document is on economic inequality, but it is important to note that inequality does not 
only concern economic wealth. It can affect access to power and decisions (political inequality) 
or exposition to environmental risks and access to natural resources (environmental inequality). 
All forms of inequality are interconnected to a degree. Social and economic inequality, for instance, 
are  strongly  linked  in  the  provision  of  public  services  like  education,  health,  nutrition,  housing, 
employment,  security  and  other  rights.  That  being  said,  this  document  focuses  primarily  on  the 
resource at the core of economic inequality: income.

3

 1. INTRODUCTION TO INEQUALITY Income inequality

Reducing inequality of income is a major policy area. Income is at the source of many inequalities of 
outcomes and opportunities, as it often determines a household’s access to food, health, education, 
housing, and a lot of what makes life feasible and enjoyable. Economists consider three levels at 
which personal or household income can be studied:

Primary income
(or market income)
 is the distribution of 
income earned from 
economic activity, 
before taxes, 
subsidies and social 
benefits are applied.

 Secondary income
(or disposable 
income)
is the distribution 
of income after 
applying taxes, 
subsidies and social 
benefits.

Tertiary income 
is the distribution 
of income when 
public expenditures 
in services such as 
education, health or 
infrastructure are 
factored in. 

Total income equality for everyone is neither possible nor just. Differences in rewards can be fair 
and provide useful incentives. However, given the magnitude of income inequality in the world today, 
accomplishing a shift in the distribution towards more income equality would drastically improve life 
for billions of people and make our societies more sustainable. 

Measuring inequality

Unlike  data  collected  by  States,  like  GDP,  economic  inequality  data  mostly  rely  on  surveys.  Data 
from national accounts provide aggregates that do not reflect the distribution of incomes; surveys 
need to be conducted to measure inequality in a population. Despite their importance, surveys do 
have a number of drawbacks. The first is availability: surveys must be representative (nationally, 
for instance), which means large samples, operational complexity, and heavy costs. They are seldom 
carried out regularly enough to study inequality and evaluate public policies. Regrettably, the countries 
that face the most challenges in carrying out income distribution surveys are often those that need 
them most.

Income inequality can be measured either in terms of income or consumption. Income is preferable 
in principle, as it weighs so much in inequality. But income data is not always available, especially 
in poorer areas, where informal economies make it irregular and difficult to track. A typical example 
is  the  survey  of  farming  populations.  Depending  on  when  the  survey  is  conducted  relative  to  the 
harvest period, income can vary dramatically. In addition, the concept of income may be irrelevant in 
assessing life standards in the case of populations that rely on household production, notably in the 
agricultural sector. 

That  is  why,  in  poorer  contexts,  surveys  tend  to  collect  information  on  consumption  instead  of 
income,  as  it  is  more  stable  throughout  the  year.  Although  their  income  may  change  drastically, 
people tend to maintain the same consumption habits. Researchers can use it as a proxy for income, 
but only when households tend to spend all that they earn. Indeed, as consumption does not include 
savings, it becomes less useful at higher income levels. As a consequence, in middle- and even low-
income areas, inequality data based on consumption information often underestimates inequality 
levels compared to measurements based on income.

4

ADDRESSING INCOME INEQUALITY THROUGH DEVELOPMENT COOPERATION: A QUICK GUIDERegardless of whether income or consumption data are collected, little information is available at the 
very top of income distribution. Surveys are not effective at gathering information on individuals 
that have amassed great wealth. The people at the upper end of the income distribution are very rich 
and very few. As a consequence, they are seldom included in samples, even though their combined 
incomes make for a significant proportion of the total. Even when surveys include the very rich, they 
tend to present high non-response rates and often will not fully disclose all their income.

Figure 2 The poorest half lags behind: Bottom 50%, middle 40% and top 10% incomeshares across the world in 2021.

Bottom 50%       Middle 40%

Top 10%

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70%

60%

50%

40%

30%

20%

10%

0%

Europe

East Asia

North
America

Russia &
Central Asia

South &
South-East
Asia

Latin 
America

Sub-Saharan
Africa

MENA

Interpretation: In Latin America, the top 10% captures 55% of national income, compared to 36% in Europe. Income is measured after 
pension and unemployment contributions and benefits paid and received by individuals but before income taxes and other tranfers.
Sources and series: www.wir2022.wid.world/methodology

Inequality indicators: Gini index and the bottom 40%

Income inequality is too complex to be captured by a single indicator. The Gini index is the most 
widely used, as it provides a straightforward tool to rank countries and monitor inequality levels 
over  time.  The  Gini  index  corresponds  to  the  area  between  two  curves:  one  is  a  perfectly  equal 
distribution  of  income  where  everyone  receives  the  same  amount,  while  the  other  is  the  actual 
income distribution of a given population (the Lorenz curve). The Gini index ranges from 0 to 1 (or 
0% to 100%), with zero representing perfect, hypothetical equality (everyone has the same income) 
and one is total inequality (a single resident earns all the income).   

The  Gini  index  is  more  sensitive  to  variations  in  the  middle  of  the  income  distribution  than  to 
changes within the top and bottom tails. Given the unreliability of data at the ends of the income 
spectrum (particularly at the richer end), the index is built to focus on those parts of the distribution 
where quality information is most often available. A major drawback is that changes occurring in the 
poorest and richest segments of the population are underrepresented. 

Another flaw of the Gini index is that different shapes of the Lorenz curve can result in the same 
Gini index – the same way a single length of rope can form multiple shapes with different areas. 
The result is that two countries with the same Gini ranking could in reality exhibit very different 
profiles of inequality. A complementary method must be used to circumvent the Gini index’s lack 
of sensitivity at the tails: focusing on the shares of income accruing to the top and bottom of the 
distribution. Those typically considered: the bottom 40% (in line with the SDG 10 target 10.1) and 
the top 20%, 10% or even 1% to focus on the interesting dynamics among groups at the top.

5

 1. INTRODUCTION TO INEQUALITY  
 
 
 
Figure 3 Gini is an imperfect measurement

Country A

Country B

45°

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20,0

10,0

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In country A: 50% of the poorest earn 10% of the national income / In country B: 10% of the richest earn 50% of the national 
income. These two distributions are “symmetrical” and have the same Gini (0.40). However, the share of the richest 10% is very 
different: 18% for A, 50% for B. Likewise the share of the poorest 40%: 8% for A, 22.2% for B.

Country A

Country B

45°

What is also interesting is that they are difficult to rank from a distributional point of view: depending on the criterion used (top 10 
or bottom 40), we reach different conclusions. Graphically, this is shown by the fact that the 2 curves cross.

C. Inequality reduction as a tool for cooperation

Inequality reduction and poverty

Inequality is an important barrier to reducing poverty. Economic growth in countries with high 
inequality levels is less effective at decreasing poverty, as it tends to be absorbed by the wealthier 
segments  of  the  population.  Additionally,  tackling  inequality  is  actually  reducing  poverty,  as  any 
improvement towards a more equal distribution mechanically improves income at the poorest level. 
It follows that reducing inequality yields a double benefit: it accelerates growth and increases its 
capacity to reduce poverty. 

Economists  use  the  analogy  of  the  poverty-growth-inequality  triangle  to  illustrate  how 
decreasing  inequality  accelerates  poverty  reduction.  There  is  a  precise  relationship  between  the 
three summits of the triangle in any given country. In practical terms, it means that reducing poverty 
implies  a  combination  of  growth  and  targeted  redistribution  policies  that  reduce  inequality.  The 
important takeaway is that growth policies that do not include redistribution of wealth have little 
impact on rates of poverty.

Inequality reduction and other Sustainable Development Goals 

Empirical  evidence  shows  that  income  inequality  is  an  obstacle  to  achieving  many  other 
Sustainable  Development  Goals.  We  saw  that  inequality  slows  the  fight  against  poverty  (SDG1) 
and  hinders  working  conditions  and  sustainable  growth  (SDG8),  but  inequality  also  hinders  other 
struggles for peace, gender equality and protecting life on Earth.

Inequality is a threat to peace, democracy and to the quality of institutions (SDG 16) in general, 
because  it  undermines  their  legitimacy  by  weakening  social  cohesion,  trust  in  government  and 
community resilience. High income inequality also means that economic interest  groups  have 
a  disproportionate  influence  over  democratic  processes;  where  decisions  about  financial  and 
environmental health regulations are concerned, this tends to undermine sustainability. Inequality 
facilitates corruption and abuses of power, further eroding good governance. Even more critically, 
horizontal inequality (between groups) is linked to conflicts and violence. 

6

ADDRESSING INCOME INEQUALITY THROUGH DEVELOPMENT COOPERATION: A QUICK GUIDEInequality has a demonstrated negative impact on the sustainable management of natural resources 
and  ecosystems  (forest,  wetlands,  fisheries,  etc.)  and  has  led  to  an  accelerating  biodiversity 
crisis. A stark example is poaching and illegal logging, be it for subsistence or income from black 
markets. Aside from uncontrolled biodiversity losses, poverty and inequality drive human activity 
into  increasingly  more  secluded  areas,  where  zoonotic  pathogens  like  the  COVID-19  pandemic 
originate. In the longer run, disadvantaged groups and ecologically vulnerable populations will bear 
the brunt of the disasters associated with climate change. Inequality worsens their resilience to the 
changes expected from a warmer climate and magnifies the risk by slowing down climate change 
mitigation.  This  directly  threatens  the  Sustainable  Development  Goals  relating  to  protecting  our 
climate (SDG13) and life, whether in the oceans (SDG14) or on land (SDG15).

Finally,  inequality  locks  women  and  girls  into  unequal  power  relations,  limiting  their  access  to 
political power and decision-making as well as impairing their autonomy and freedom. Exclusion, 
discrimination and violence towards women tend to be higher in more unequal societies. Moreover, 
gender inequality is often aggravated when women experience other forms of exclusion, for instance 
because of their age, disability, ethnicity, sexual orientation, religion or geographical location. This is 
a direct threat to the fifth Sustainable Development Goal (SDG5).

Figure 4 Inequality reduction is central to achieving the SDGs

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2

3

NO
POVERTY

ZERO
HUNGER 

GOOD HEALTH
AND WELL-BEING

17

PARTNERSHIP 
FOR GOALS

16

PEACE,
JUSTICE AND
STRONG INSTITUTIONS

15

LIFE
ON LAND

INEQUALITY
REDUCTION

14

13

11

LIFE
BELOW WATER

CLIMATE
ACTION

SUSTAINABLE
CITIES

QUALITY
EDUCATION

GENDER
EQUALITY

4

5

6

CLEAN WATER
AND SANIFICATION

8

DECENT WORK
AND ECONOMIC GROWTH

7

 1. INTRODUCTION TO INEQUALITY 2

A METHODOLOGICAL FRAMEWORK 
AGAINST INEQUALITY

C. The EU Policy Framework for tackling inequality 

The EU’s response to inequality

Seeking better policies to reduce inequality at the core of many European texts, from the third chapter 
of its Charter of Fundamental Rights, to the Treaty of Lisbon and the new European Consensus on 
Development. Tackling inequality is also essential to the European Green Deal and to addressing 
the  climate  crisis,  as  per  the  Paris  Agreement.  Because  it  studies  the  distribution  of  income  and 
other  inequality  factors  in  depth,  the  European  Commission’s  approach  to  inequality  in  new  and 
existing  programmes  has  spill-over  benefits:  it  allows  international  cooperation  stakeholders  and 
policymakers to identify issues and intervention gaps sector by sector.

Drivers of inequality 

Inequality has many interlinked root causes, but three main drivers of inequality stand out: global 
finance, labour market reforms and sociotechnical changes. 

Financial  globalisation  has  had  a  negative  influence  on  wealth 
distribution  in  three  ways.  First  by  facilitating  the  movement  of 
capital  across  borders,  leading  to  outsourcing  and  relocation,  which 
increased  demand  for  high-skill  workers  in  low-income  countries. 
Financial  globalisation  also  brought  more  frequent  financial  crises 
that disproportionately affected the poor, as did the 2007 subprime 
mortgage crisis. Finally, financial globalisation maximises shareholder 
value to the detriment of labour, which hinders wage increases while 
favouring outsourcing and downsizing as well as weakening unions. 

Labour  market  reforms  aimed  at  increasing  flexibility  mean  that 
workers  have  less  bargaining  power,  which  increases  inequality. 
Furthermore,  neoliberal  policies  such  as  low-income  protection,  low 
minimum  wages  and  reforms  lowering  union  density  also  limit  the 
share  of  income  apportioned  to  labour.  In  poorer  countries,  these 
policies have pushed many workers into the informal economy, further 
fuelling wage inequality and complicating inequality-reducing policies. 

8

ADDRESSING INCOME INEQUALITY THROUGH DEVELOPMENT COOPERATION: A QUICK GUIDETechnological developments and accompanying social changes 
have also played a central role in driving up inequality worldwide. A 
more  digital  and  service-oriented  economy  rapidly  increased  the 
demand for skilled labour, awarding a growing wage premium to the 
highly skilled to the detriment of low-skilled workers. Automation has 
eliminated many jobs or raised the skill level necessary to obtain or 
keep them. On a global scale, technological advances have increased 
the returns on capital, which has fuelled an explosion at the very top 
of the income distribution, making the very rich even richer. 

There are many other factors that can impact inequality: corruption, neoliberal policies, dependence 
on natural resources and ethnic fractionalisation, for instance, all contribute to social, economic and 
environmental inequalities.

Components to lower inequality 

What can policymakers do to help reduce inequalities? Three important strands of initiatives are the 
provision of public goods, gender-focused policies and income redistribution. Public goods 
include health, education and infrastructure. Education plays a decisive role in reducing inequality. It 
is a strong determinant of occupational choices and therefore of income levels. Public investment in 
education can easily translate into reducing inequality by increasing the share of the population that 
has access to professional and social opportunities. 

PROVISION OF PUBLIC GOODS

Available and affordable access to basic infrastructure (water and sanitation, electricity, heating, 
and waste disposal) is essential to public health, quality of life and community resilience. It increases 
the productive and free time available to individuals and families, laying the foundation for their 
equal opportunity to participate in the educational and economic systems.

GENDER-FOCUSED POLICIES

Policies addressing gender inequalities also tackle unequal access to health and education, which 
leads  to  diminished  agency,  political  representation  and  economic  opportunities  for  women  and 
girls. Policies that improve women’s socioeconomic status and address gender inequality also help 
lower income inequality. Many gender-focused policies have already been implemented and have 
proven  their  efficiency  in  redistributing  and  balancing  care  responsibilities,  creating  economic 
opportunities  to  close  the  gender  gap  in  employment  and  entrepreneurship  as  well  as  tackling 
discriminatory laws and restrictive social norms.

9

2. A METHODOLOGICAL FRAMEWORK AGAINST INEQUALITY INCOME REDISTRIBUTION

Trade policies can have a positive impact on inequality if they increase the income of the bottom 
40%  in  relation  to  average  or  top  incomes.  The  relationship  between  trade  and  inequality  is 
ambivalent, as trade liberalisation has negatively affected wealth inequality (through a redistribution 
of income towards capital) and income (through detrimental labour market effects for less productive 
manufacturers).  But  trade  openness  can  also  be  associated  with  lower  inequality  through  wage 
increases for low-skill jobs. However, gains in terms of trade have to be taxed and redistributed in a 
progressive fashion if trade liberalisation is to reduce inequality in any meaningful way.

Redistributive  policies  such  as  a  progressive  tax  system  can  be  strong  drivers  of  inequality 
reduction.  Such  policies  usually  have  a  direct  effect  on  (secondary)  income  but  also  yield  other 
benefits, such as investment in children’s health and education. 

D. Macro areas for policy action against inequality

Adjusting policies to levels of inequality

Some policies for reducing inequality target areas such as labour markets, land ownership or 
finance  and  trade  regulations.  These  interventions  aim  to  improve  the  distribution  of  primary 
income (which ignores taxes, subsidies and social benefits). Such policies include land reform and 
interventions supporting human capital development through education (which can be measured by 
the percentage of higher education or the skill premium).

Inequalities in terms of net fiscal and social transfers involve the distribution of secondary income. 
This type of inequality can be targeted by fiscal policy and measured using the amounts of taxes 
and  transfers  as  a  percentage  of  GDP,  or  the  incidence  of  taxation.  Tertiary  income  inequality  is 
a way of accounting for the share of public expenditure in income and how it is distributed in the 
population. This can be measured through the amounts spent on public services as a percentage of 
GDP, or assessing the share of private services. 

Macro policy areas relevant to fighting inequalities 

EU objectives for the reduction of socioeconomic inequality revolve around four building blocks: 
Each building block represents a macro area for intervention.

Macro Area 1

Enabling People 
– Ensuring Equal 
Opportunities

Investing in education

Facilitating access to 
assets

Addressing gender 
inequalities

Digitalisation for all

Macro Area 2

Supporting and 
Safeguarding 
sustainable Inclusive 
Growth

Promoting Decent Work

Targeting investments for 
the bottom 40 %

Maximising the 
employment potential of 
investment and trade

Macro Area 3

Improving the 
Collection and 
Distribution of 
Resources

Supporting DRM and 
progressive fiscal policies

Addressing tax evasion 
and illicit financial flows

Macro Area 4

Enabling People 
– Ensuring Equal 
Opportunities

Expanding social 
protection and UHC

Fighting climate change

10

ADDRESSING INCOME INEQUALITY THROUGH DEVELOPMENT COOPERATION: A QUICK GUIDE3

ADDRESSING INEQUALITY THROUGH 
DEVELOPMENT COOPERATION 

E. Key principles

Inequality dialogue

Inequality is a complex and contentious issue that generally requires thinking about its structural 
causes, as well as questioning political, technical and cultural norms that are often deeply rooted 
at the local or country level. An approach to inequality informed by history is necessary in order 
to  build  trust  among  cooperation  partners  and  create  the  conditions  of  an  open  dialogue  about 
the unequal distribution of wealth. An efficient way to discuss inequality issues is to bring as much 
evidence to the table as data availability and statistical capacities will allow. Disaggregated income 
data, a crucial element to understanding inequality, is often of poor quality if not completely lacking. 
Here, what is measured and what is not, matters. It reflects the country’s priorities and is likely to 
determine how public policy is designed and where aid funds are directed. 

Several approaches can be adopted to address inequality through policy interventions, depending 
on the level of existing knowledge about income distribution in the country, established priorities 
in terms of sectors or population groups and the sensitivity of inequality-related issues among 
stakeholders.  The  broad  guidelines  presented  here  are  not  about  repackaging  business-as-usual 
interventions in poverty alleviation. The next sections review and describe four principles that can 
be followed in order to tackle inequality through specific channels and integrate inequality reduction 
into development activities. 

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11

3. ADDRESSING INEQUALITY THROUGH DEVELOPMENT COOPERATION  
 
 
 
 
 
 
 
 
 
 
 
 
Key principle 1
BENEFICIARY APPROACH 

The beneficiary approach aims 
at designing effective responses 
targeting the most vulnerable.

Poor  and  marginalised  communities  or  individuals 
should  be  collectively  identified  and  an  outreach 
organised  so  that  they  can  be  included  throughout 
the  programming  and  project  cycle.  The  beneficiary  approach  benefits  greatly  from  participatory 
approaches that foster involvement of and dialogue with national and local stakeholders. It is also 
crucial to encourage the participation of women and marginalised groups in order to design policies 
tailored to their rights and needs. Targeting in this framework is demanding and requires identifying 
households  and  beneficiaries  at  several,  detailed  levels  (geographical,  income,  etc.).  There  is  no 
need to start from scratch, however: reinforcing the existing social dialogue with capacity-building 
mechanisms is an important dimension of the beneficiary approach and it can go a long way. 

Key principle 2
TRANSPARENCY AND 
ACCOUNTABILITY

Poor availability of disaggregated data 
makes it difficult to understand and 
tackle inequality. The same is true for 
accountability and transparency.

It is all the more problematic that corruption is both a driver and an outcome of inequality. Improving 
transparency  goes  hand  in  hand  with  the  participatory  dispositions  in  the  beneficiary  approach. 
More participation and institutional accountability tend to render policies more inclusive as well as 
increasing transparency in policymaking.

Guidelines to transparency measures that promote lower inequality:

  Steer cooperation towards strengthening democratic institutions (e.g. freedom of information) 

  Ensure transparency, public and private accountability, and access to information

  Strengthen national statistical systems 

  Enforce well-implemented anti-corruption laws 

  Wisely use digital governance to strengthen democratic processes and transparency

  Build capacity in civil society organisations, giving them access to information and the ability to 

conduct social audits of firms and administrations

12

ADDRESSING INCOME INEQUALITY THROUGH DEVELOPMENT COOPERATION: A QUICK GUIDEKey principle 3
TARGETING THE
BOTTOM 40 PERCENT

Raising income for the bottom 40% while 
ensuring a fair contribution from the top 
10% is crucial to reduce inequality. 

Fiscal  policy  is  an  important  instrument  in  this  regard  but  multiple  areas  of  intervention  should 
be combined. Tools and methods adapted to the characteristics of the bottom 40% are required, 
especially in countries where information about this segment of the population can be scarce.

Guidelines to reducing inequalities within the bottom 40%:

  Promote universal and free access to healthcare and education, especially in remote areas

  Cultivate social protection policies for those communities most vulnerable to food and climate risks

  Sponsor the creation of decent employment with high labour standards, prioritising low-skill labour 

  Establish access to infrastructures, services and means of political participation for marginalised 

communities 

  Support fair and progressive tax reforms for citizens and firms, enforced by well-equipped authorities

  Monitor and evaluate policies, focusing on living standards in the bottom 40%

Key principle 4
CONSIDER TERRITORIAL 
DIMENSIONS 

Spatial inequality should be investigated for a 
better understanding of inequality in a country.

This geographical lens can help identify new issues and new policy gaps, for which geographically 
targeted interventions are required. Differences between regions, urban-rural inequality, intra-urban 
inequality, and inequality between rural centres are several dimensions to take into account when 
studying  spatial  disparities  in  wealth.  Understanding  the  geographical  allocation  of  funding  with 
regard  to  the  subnational  distribution  of  income  can  be  an  efficient  way  to  assess  the  extent  to 
which policies and cooperation projects take inequality into account.

Here are some important aspects to consider when addressing geographic inequality:

  Within-country  inequality:  proximity  to  the  capital  or  agricultural  production  create  geographic 

disparities, as do harsh climates or being landlocked

  Economic indicators generally show better performance in urban areas, but intra-urban inequality 

can be extremely high

  Rural areas exhibit different profiles, with remote areas being generally worse off than rural centres 

where trade concentrates

13

3. ADDRESSING INEQUALITY THROUGH DEVELOPMENT COOPERATION F. Practical steps

Practical steps to integrate inequality and cooperation 

Inequality reduction can be integrated into all stages of project cycles. This decision tree (Figure 5)
illustrates the logical sequence presented in this section: 

  Start by developing a better understanding of the overall situation of inequality in the partner 

country, or at least in some of its key sectors.

  Feed the knowledge gained from context analysis into the dialogue between the EU and the 

partner country.

  Use the context analysis and the dialogue to examine potential approaches to mainstreaming 
reduction  of  inequality  into  EU  development  cooperation.  This  step  will  differ  depending  on 
whether the programmes have already been formulated or not. 

  Budget support is an area that lends itself particularly well to improvements in cross-cutting 

issues such as inequality.

While the practical steps described here can serve as guidance to incorporating inequality reduction 
in cooperation programmes, it is crucial to bear in mind that each country is different and that there 
can be no blanket approach. Policy dialogue must be adapted to the particular political, cultural, 
social and policy context of each country.

Figure 5  Decision tree for mainstreaming the reduction of inequality into EU development cooperation

YES

Existence of quantitative and 
qualitative data on inequality and 
knowledge about inequality drivers

NO 

Policy dialogue on inequality

NO 

YES

Assess approaches 
for support

Create 
space for 
dialogue on 
inequality 
drivers

Support 
national 
statistical office 
and research

Keep policy dialogue on 
equalities alive

Identify and agree on support to 
inequality driver sectors / policies

Assess current portfolio for 
inequality contributions

Political / 
policy 
dialogue

Dialogue on 
interventions

Formulate / 
design 
inequality 
interventions

Mainstream 
inequality 
considerations in 
interventions

Mainstream 
inequality 
considerations in 
existing portfolio

14

ADDRESSING INCOME INEQUALITY THROUGH DEVELOPMENT COOPERATION: A QUICK GUIDEContext analysis

When it comes to reducing inequality, the very first step of development cooperation consists of an 
exploratory assessment of what is already known and what are the grey areas that need further 
investigation. This assessment should aim at answering the following questions: 

  Historical perspective: How has the situation evolved over time? 

  Drivers’ identification: What are the main drivers of inequality? This will help understand how 

income, wealth and power are driven by sector policies.

  Sector  identification:  What  may  be  the  scope  for  integrating  inequality  reduction  into  the 

development cooperation within the limits of what is needed, desirable and realistic?1 

At  this  stage,  it  is  crucial  to  anticipate  constraints  and  obstacles  to  inequality  reduction.  First, 
inequality can be a contentious issue, whose structural causes often go beyond the policy sphere. 
Second, quantitative evidence on inequality can be difficult to gather since data is not often available. 
In this case, the priority should be given to supporting the national statistical office, initiating studies 
and supporting research.

Policy dialogue 

The EU has firmly embedded the fight against inequality as a cross-cutting objective in each of its 
programmes  to  achieve  better  development  outcomes.  Conditionality  could  be  a  way  to  achieve 
this goal by tying cooperation to action on inequality and the European Union’s role can be used 
effectively  in  expanding  the  agenda  and  engaging  with  stakeholders  to  create  a  policy  dialogue 
(through  studies  and  research  or  spaces  of  dialogue,  for  instance).  A  deadlock  can  arise  if  policy 
dialogue is held with precisely the social group that benefits from inequality. In those cases, it is 
important to stand firm on the basis of broad empirical evidence, using all the tools available to build 
a systematic and shared representation of inequality.

Ideally, the EU should integrate the reduction of inequality in all its interventions but, if prioritisation 
must be made, it should be the results of a thorough situation analysis. Nevertheless, policy dialogue 
should focus on taxation since progressive tax systems yield a double dividend in the fight against 
inequality: they directly reduce the gap between rich and poor, while also raising revenue that can 
be invested in social spending.

Inequality and programme design

The programming stage provides a great opportunity to implement a proper distributional impact 
assessment, allowing us to understand the extent to which both the EU’s operations in the country 
and  the  government  have  paid  attention  to  inequality  in  the  past.  On  this  basis,  the  EU  should 
select  the  sectors  in  which  EU  cooperation  will  mainstream  efforts  to  reduce  inequality  even 
though  an  overall  approach  in  which  inequality  is  simply  mainstreamed  into  all  relevant  sectors 
and interventions is possible. As mentioned earlier, where neither data nor space are yet available 
to address inequality, the EU should commit to research and studies. Throughout this programming 
phase, it is important to agree with the country on the performance indicators that will serve to 
monitor progress. Those indicators measuring inequality in the country and its drivers, will drive the 
identification and formulation process.

1.   The reference document (Volume 3, box 2,2) provides a list of concrete actions to discover what is known about inequality in the 

country, including references to several tools to implement context analysis. 

15

3. ADDRESSING INEQUALITY THROUGH DEVELOPMENT COOPERATION Subsequently, inequality can be integrated into the design of interventions, through sectoral problem 
analysis, choice of intervention and making sure that inequality is not neglected when designing and 
implementing interventions. The context analysis should be deepened to include geographical and 
spatial analyses and understand the specifics of inequality in the sectors targeted. By combining 
both  quantitative  and  qualitative  data,  this  sectoral  problem  analysis  can  dig  deeper  into  how 
inequality is driven by sector policies and their financing. During this phase, it is primordial to keep 
the beneficiary approach in mind: the final beneficiaries of mainstreaming the reduction of inequality 
should be the bottom 40 per cent, even if the direct beneficiaries of support are the institutional 
structures with which the project or budget support directly interacts.

Including an inequality scope in existing interventions

When interventions and programmes are already formulated, the EU should at least ensure that 
they do not have negative effects on inequality. If this appears to be the case, corrective measures 
should be taken. A monitoring system can be designed in order to assess the effect of the project 
on inequality. The system should include both quantitative and qualitative indicators to facilitate 
participation and understanding by all stakeholders.

Table 1  Possible responses to different situations

SITUATION

POSSIBLE RESPONSE

Insufficient research and data on 
inequality

  Launch studies using technical cooperation; work with the national 

statistical office

  Program a research project develop partnerships (with universities, 
The National statistical office, development partners EU Member 
States)

  Prepare a call for proposals targeting inequality (mapping and 

dialogue) and launch it

Policy planning and development 
present challenges to integrating 
an inequality perspective

Design a capacity-building project to develop policies; the focus could 
be sectoral or fiscal

Inequality is recognised only 
in some sectors, subsectors or 
regions

  Design a project that mainstreams reducing inequality

  All project cycle phases should integrate an inequality perspective in 
dialogue, terms of reference, steering committees and working groups

Inequality is acknowledged at 
sector level or in general; sector 
policy is being developed

  Engage in and pursue dialogue on sector policy

  Proposed budget support

  Agree on the inclusion of an inequality perspective in the eligibility 

criteria analysis

There is no space for inequality 
on the political agenda

  Probably only dialogue can be envisaged

  The EU should use its status to collect information

  Policy dialogue is required and should inform strategic and political 

dialogue with the country and its government

  Operational dialogue on existing interventions and with their 

stakeholders will feed the policy dialogue

In all situations

16

ADDRESSING INCOME INEQUALITY THROUGH DEVELOPMENT COOPERATION: A QUICK GUIDE 
Inequality reduction through public finance 

Budget support can be an effective vehicle for bringing inequality concerns to the attention of the 
authorities  and  wider  stakeholders.  Budget  support  can  simultaneously  raise  awareness,  provide 
support,  and  both  initiate  and  fuel  policy  dialogue.  First,  an  inequality  angle  can  be  integrated 
into  the  analysis  and  monitoring  of  the  eligibility  criteria  of  budget  support.  The  analysis  of  the 
macroeconomic  policy  and  performance  of  the  public  finance  management  reform  could  easily 
include inequality within its scope. Second, budget support can provide complementary support that 
can help stakeholders integrate inequality reduction into their policies and monitoring systems. Third, 
discussions of budget support performance indicators are an especially valuable tool for addressing 
inequality  issues  and  the  indicators  should  both  reflect  the  inequality  reduction  objectives  and 
measure inequality outcomes. Finally, the forum of budget support dialogue with the government 
and other stakeholders can be used to launch and inform inequality reduction strategies.

For  a d d it io na l  i nfor mat io n  a n d   m or e  d e t a il e d  co n t e n t ,   b e  sur e   t o   c h e c k 
o u t   t h e  co m p le t e  r efer e n ce  d o c u m e n t  “A d dr e ssi n g  i n co m e  i n e q ua l it ie s 
t hr o u g h d evel o p m e n t co o p er at io n”, Vol u m e s  1 , 2 a n d 3, ava il a bl e o n t h e 
we b sit e of  t h e P u bl ic at io n s O f f ice of t h e  E ur o p ea n U n io n .

17

3. ADDRESSING INEQUALITY THROUGH DEVELOPMENT COOPERATION M
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ISBN 978-92-76-57203-9 

DOI 10.2841/209509