# **I. Introduction**

Promoting shared prosperity is about ensuring that everyone in society today as well as future generations participates in a dynamic process of continuing welfare improvement. The challenge facing the development community is not only to raise living standards in the poorest developing countries, but among poor people everywhere, continuously over time and across generations.

Raising the welfare of the poor in every country means ensuring that rising prosperity benefits the less well off. Consistent with this principle, the World Bank Group’s (WBG) goal of promoting “shared prosperity” uses income growth of the bottom 40 percent of the population in every country as an indicator.<sup>1</sup> As described by the WBG, this simple indicator reflects the need for a growing economy, along with a fundamental concern for equity.<sup>2</sup> It captures the notion that for prosperity to be truly shared in a society, raising everyone above an absolute minimum standard of living and/or maximizing average income growth is not enough. Rather, for a society to become more inclusive, economic progress should lead to continuous increase in prosperity among the relatively poorer members of society over time. A focus on the incomes of the bottom 40 percent does not imply that economic growth is unimportant. Instead, the indicator signals the need to focus attention on the bottom two quintiles of the income distribution of a country, instead of the common practice of assessing economic progress by growth of GDP per capita and then expecting the benefits of growth to “trickle down” to those at the lower end of the distribution The shared prosperity indicator is not intended to be comprehensive, in terms of including all relevant aspects of wellbeing. Rather, it serves as a “signal” of where the focus of governments and development agencies should be. The use of a money-based metric is not intended to ignore the many dimensions of welfare, but is instead motivated by the need for an indicator to be relatively easy to understand, communicate and measure, notwithstanding its own challenges of measurement. The essence of shared prosperity comprises the different dimensions of wellbeing of the less well off, today as well as sustainably for future generations.

This paper is a discussion piece on certain aspects of shared prosperity, which is primarily intended to start a discourse and hint at future areas of further research. In sections II and III, we discuss the principle and put forward some ideas on how the indicator can be measured consistently across countries, and highlight a few important trends and stylized facts emerging from a recently developed multi-country database (which remains a work in progress) on the shared prosperity indicator. Some of these results provide context to a discussion on how shared prosperity relates to growth and inequality. Section IV will briefly discuss some initial thoughts on how the agendas of economic growth, opportunities for all and shared prosperity form an interdependent cycle of progress, mediated by the role of state, markets and the social contract. Sections V and VI will focus in more detail on the links between shared prosperity and equality of opportunity, what these links could imply for the social contract, and how these links would matter for a policymaking process that seeks to promote shared prosperity. Section VII will conclude by summarizing the main insights of the paper.

# **II. Shared Prosperity:  The principle and measurement**

The shared prosperity indicator is based on the normative principle laid out by Basu (2001, 2006) that in evaluating a country’s well-being, one should focus on the country’s “quintile income” (per capita income of the poorest 20 percent of the country).<sup>3</sup> The same principle of concentrating on the less well-off segment of society, but applied to a larger segment of the income distribution (bottom 40 percent instead of 20 percent), motivates WBG’s goal of promoting shared prosperity.<sup>4</sup> As mentioned above, the indicator is not intended to be comprehensive but rather serve as a “signal” of where the focus of governments (and its development partners) that share this objective should be. The indicator as defined is easy to understand and relatively easy to measure, albeit with its own challenges 2