Growth and Inequality Effects on Poverty Reduction in Italy

This paper evaluates poverty sensitivity to growth in mean incomes and distributional changes in Italy across its regions and over a period spanning from 1977 to 2004. We use the ®Survey on Household Income and Wealth¯ (SHIW) of the Bank of Italy to estimate the growth incidence curves and the income and inequality elasticities of poverty. Growth strongly determines the patterns of poverty; however, inequality appears to have strikingly characterized it as well. A 1% increase in mean income produces a reduction in the headcount index by around 2.8%, while a 1% increase in inequality increases it by around 2.2%. The heterogeneity in poverty rates between North, Centre and South is due to the strong heterogeneity in the poverty elasticities, which in turn depend on the initial conditions of inequality and the initial level of development.