# **1. INTRODUCTION**

The World Bank Group’s (WBG) twin goals of ending extreme poverty and promoting shared prosperity are at the forefront of the WBG’s operations. The shared prosperity goal, defined as fostering income growth of the bottom 40 percent, reflects the fact that as countries grow, the benefits of the growth may not necessarily be widely shared among the population. Nations with a widening gap between those who can and cannot access opportunities in life have difficulty sustaining economic growth and social stability over time. Shared prosperity therefore focuses on two, often competing, concerns, expanding the size of the economy and sharing it among all members of society, particularly the poor (World Bank, 2015a). Furthermore, the indicator of shared prosperity features prominently as target 10.1 of one of the Sustainable Development Goals of reducing inequality within and among countries. The concept and measurement of shared prosperity may therefore gain traction beyond the Word Bank Group’s operational work in the coming years.

Unlike ending extreme poverty, the shared prosperity goal is country specific without a specific target at the global level. Good performance depends on whether consumption of the bottom 40 percent of the population is positive and how it compares with growth of the population from other parts of the distribution.

The frequency and quality of data on poverty and shared prosperity are of utmost importance to successfully monitor the twin goals and to set effective policies for a country’s poverty reduction program. Shared prosperity measures consumption or income growth rates from representative household surveys and requires a comparable welfare aggregate at two points in time. This makes it particularly demanding in terms of data availability and quality (World Bank, 2015a).

Countries should make numerous methodological choices to measure shared prosperity. The impact of these choices on the shared property indicator is an empirical question. This issue becomes even more important when the monitoring of shared prosperity is done at the global level. For example, the World Bank constructs corporate numbers on shared prosperity based on welfare indicators used for estimating poverty headcount rates measured at the $1.90 per day per capita in 2011 PPPs poverty line. This decision was made to ensure consistency for the two indicators of the WBG measuring extreme poverty and shared prosperity. As a result, the estimation of the shared prosperity indicator follows special conventions of adjustments adopted for estimating extreme poverty. Some of these adjustments are not necessarily consistent with the recommendations of the World Bank’s poverty measurement manuals (Deaton and Zaidi 2002; Ravallion 1992, 1996), which have been adopted by many developing countries when estimating national poverty and inequality statistics. It is, therefore, crucial to understand how different choices in the estimation process affect the shared prosperity indicator.

Given that shared prosperity is a relatively new indicator, there is a lack of studies that systematically test the robustness of the indicator to different parameters. Most of the existing literature focuses on global performance in shared prosperity and its relationship with overall growth and inequality (Narayan et al., 2013; Cruz et al., 2015; World Bank, 2015ab). To the best of our knowledge, there were only a couple of illustrative tests in the World Bank (2015a) thus far, demonstrating how the choices of data and time intervals affect the indicator of shared prosperity using the example of Peru. Results of systematic robustness tests will be useful to the World Bank for a better measurement of its corporate goal and to countries which may choose to deviate from the methodology used by the World Bank and to introduce changes to the construction of the indicator of shared prosperity.

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