(as the discussion below makes clear). Notably, the use of money-based metric is not intended to ignore the many dimensions of welfare. _First_ , income itself is a multi-dimensional indicator of welfare because it aggregates the purchase of many commodities and services, including health and education. _Second_ , a measure expressed in monetary terms has the advantage of approximating the notion of welfare in a single indicator. That said, as this paper will argue, sustainably ending poverty and sharing prosperity (the two goals set by the WBG) are unequivocally about progress in both monetary and non-monetary dimensions of welfare for the current and future generations. This includes, but is not limited to, education, health, nutrition, and access to essential infrastructure, as well as empowerment and enhancing voice and participation in economic, social, and political spheres. Hence, for shared prosperity to increase in a society, policymakers cannot just focus on maximizing income growth of the bottom 40 percent today.

Unlike the objective of minimizing poverty or inequality, the objective of maximizing the incomes of those at the bottom of the distribution has a natural dynamism, by virtue of it being a moving target. It is also consistent with the idea of prosperity being “unbounded,” as opposed to being defined by an absolute standard that everyone should reach, which is unlikely to remain constant as societies, along with the aspirations of people, evolve along the development path.<sup>5</sup> In a country with gross inequalities, improving this measure will demand a focus on the conditions of the poorest segment of society. However, if the better off segments of society lag behind in the pursuit of prosperity for too long, they will fall into the bottom 40 percent and merit attention. This dynamic aspect of the indicator is a result of the bottom 40 percent of the income distribution being defined in an “anonymous” sense, which is to say, regardless of the _identity_ of individuals in this group in any period (see below for more explanation). It also implies that economic growth, or overall increase in prosperity, is necessary for sustained progress in shared prosperity. Shared prosperity, therefore, is not an agenda of redistributing an economic pie of a fixed size. Rather, it requires expanding the size of the pie continuously and sharing it in such a way that the welfare of those at the lower end of the income distribution rises as quickly as possible. It also requires that progress is sustainable over time and across generations, in terms of the environment, social inclusion, and fiscal prudence. In fact, growth of the bottom 40 percent that comes only through redistribution is a process that is likely to collapse. Continued increase in incomes of the bottom 40 percent can only occur in the medium term through a process of sustained economic growth.

# _Measuring shared prosperity consistently across countries_

The indicator to monitor shared prosperity, henceforth denoted as <u>G40, is the growth in real per capita</u> income (or its proxy, consumption) of the bottom 40 percent of the income (or consumption) distribution in a country. There are a few important facts about the indicator that affect its measurement, interpretation and aggregation across countries, and need to be stated upfront. _First_ , this indicator is defined at the level of each country, which cannot be aggregated into an equivalent indicator at a higher level like a region or the developing world. Intuitively, this is because the bottom 40 percent in every country of a region does not add up to the bottom 40 percent of the region, given that within-country income distribution is vastly different from one country to another. _Second_ , G40 must be derived from surveys that provide income or consumption data at the household level, which is essential for identifying the bottom 40 percent and their incomes. Therefore, G40 refers to growth in _per capita real household income_ of the bottom 40 percent, which cannot be directly compared to growth in per capita GDP or GNI of a country.

_Third_ , higher income growth of the bottom 40 percent is better for a society, given the normative principle stated earlier. But that statement must be qualified due to the indicator being insensitive to changes in income distribution _within_ this income group. Growth in average income of the bottom 40 percent does not guarantee similar welfare gains in every segment within the bottom 40 percent.<sup>6</sup> In fact, that the bottom 40 percent is quite a large part of the population makes it quite possible that the growth in average income of, say, the bottom five, 10 or 20 percent lags behind that of the bottom 40 percent.

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