9 changes in poverty into growth and redistribution components, but says nothing about how inequality and growth should be related. With the apparent demise of the Kuznets curve, and no conclusive result about the possible effects of inequality on subsequent growth, there is no convincing theoretical reason to expect a systematic relationship. And indeed, there does not appear to be one in the data.

This is not to say, however, that inequality does not matter for poverty reduction. In fact, it clearly matters in two ways. The first is that, even if inequality is uncorrelated with economic growth _on average_ , there is substantial dispersion around that average. Inequality did rise in many countries, and did fall in many others. In countries with rising inequality, the effect of growth on poverty was dampened or even reversed, while in those where inequality fell, the decline in poverty for a given growth rate was greater. The ensuing heterogeneity in poverty dynamics at any given growth rate was substantial. As an illustration, Ravallion (2007) estimates that the 95% confidence interval around the regression coefficient of growth in (headcount) poverty on growth in survey income or consumption mean implies that a annual growth rate of 2% (roughly the average for developing countries in the 1980s and 1990s) is consistent with poverty reductions ranging from 1% to 7%.

The second way in which inequality matters for poverty reduction is through the dependence of the growth elasticity of poverty reduction on _initial_ inequality. Recall that the partial growth elasticity is � ������ given by . Given the convexity of the Lorenz curve, it can be shown that if a distribution A is �<sup>��</sup> � � robustly more unequal than a distribution B (in the sense that �<sup>�</sup> �����<sup>�</sup> ��� in the relevant range, then for poverty rates that are not “unusually high”, �<sup>���</sup> � ��<sup>���</sup> � and ������ ������� . Obviously, this implies that, if the real poverty line and the mean are the same in distributions A and B, then the partial growth elasticity is higher (i.e. its absolute value is lower) in the more unequal distribution. Or, in other words: economic growth always contributes towards poverty reduction but, even if there is no _change_ in inequality, its “poverty‐reducing power” is less in countries that are _initially_ more unequal.

Figure 1, drawn from World Bank (2005), illustrates this point by plotting the partial elasticity of the poverty headcount against the initial Gini coefficient for a sample of 65 countries during 1981‐2005, using a US$ 1‐a‐day poverty line. The result described above is clearly visible in the data: the growth elasticity is strongest among low‐inequality countries (with a value of approximately ‐4.0 for countries with Ginis in the mid‐20s) and weakest among high‐inequality countries (approaching ‐1.0 for countries with a Gini index around 60/100). World Bank (2005) shows that the relationship is robust to changes in both the poverty index (e.g. to FGT(2)) and poverty line (e.g. to US$2‐per‐day). Interestingly, the partial elasticity result carries though to the total empirical elasticity, which also slopes upwards when plotted against initial inequality. See World Bank (2005) and Ravallion (2007). The robustness of this regularity allows us to list it as the third stylized fact that arises from the recent macroeconomic literature on growth, inequality and poverty dynamics: _(iii) The (absolute value of the) growth elasticity of poverty reduction falls with inequality. The larger the initial inequality in a given country, the higher the growth rate needed to achieve the same amount of poverty reduction._