Poverty, Inequality, and Development PDF

Poverty, Inequality, and Development Group 1 Group Members: Krystel Agrava Justinmark Cabuhal Jian Krevan Codiamat Shane Manato Ciara Manalo  5.1 Measuring Inequality In this section, we define the dimensions of the income distribution and poverty problems and identify so...

Poverty, Inequality, and Development Group 1 Group Members: Krystel Agrava Justinmark Cabuhal Jian Krevan Codiamat Shane Manato Ciara Manalo  5.1 Measuring Inequality In this section, we define the dimensions of the income distribution and poverty problems and identify some similar elements that characterise the problem in many developing nations.  5.1.1 Size Distributions The personal or size distribution of income focuses on individual or household income levels, not the sources of income. Income source, occupation, and location are disregarded; only the amount received by each person matters. Individuals are grouped by income in ascending order and divided into categories (e.g., quintiles or deciles). Income distribution analysis often divides the population into quintiles, each representing 20% of the population. In a hypothetical example, the bottom 20% of the population receives only 5% of total income, while the top 20% receives 51%. This method highlights income disparities within the population. 5.1.1 Size Distributions Income inequality refers to the unequal distribution of total national income among households. A common measure of inequality is the ratio of incomes received by the top 20% and bottom 40%, known as the Kuznets ratio. In the example, this ratio is 3.64 (top 20% receives 51% of income, bottom 40% receives 14%). Decile shares (10% groups) provide a finer breakdown: the bottom 10% receives 1.8% of income, while the top 10% receives 28.5%. For the top 5%, the population can be divided further; the top 5% receives 15% of total income, exceeding the combined share of the bottom 40%.  5.1.2 Lorenz Curves The Lorenz curve graphically depicts income distribution inequality by comparing it to perfect equality. On the Lorenz curve graph: The horizontal axis represents cumulative percentages of income recipients. The vertical axis shows the cumulative share of total income received. A diagonal line from the origin to the top right represents “perfect equality”—each percentage group receives an equal percentage of total income. The actual Lorenz curve, plotted using decile data, shows the actual income received by each population percentage.  5.1.2 Lorenz Curves For example, the bottom 10% receives only 1.8% of total income, while the bottom 50% receives 19.8%. The further the Lorenz curve bends away from the diagonal, the greater the inequality. Perfect inequality would occur if one person received all income (the curve would align with the bottom and right-hand axes). In practice, the Lorenz curve always lies below the diagonal, as perfect equality or inequality is never fully achieved. The Lorenz curve cannot lie above or to the left of the diagonal since it would imply an impossible scenario where lower-income percentages receive more than their share, contradicting cumulative distribution principles. 5.1.2 Lorenz Curves  5.1.3 Gini Coefficients & Aggregate Measures of Inequality The Gini coefficient is a numerical measure of income inequality. It ranges from 0 (perfect equality) to 1 (perfect inequality). Graphically, it is calculated by dividing the area between the line of perfect equality and the Lorenz curve by the total area to the right of the equality line. A higher Gini coefficient indicates greater income inequality, while a lower coefficient suggests a more equal income distribution.  5.1.3 Gini Coefficients & Aggregate Measures of Inequality The Gini coefficient provides a convenient summary of income inequality, calculated as the ratio of the area between the Lorenz curve and the equality line to the total area under the equality line. Gini coefficients range from 0 (perfect equality) to 1 (perfect inequality); highly unequal countries typically range from 0.50 to 0.70, while more equal countries are between 0.20 and 0.35. The Lorenz criterion states that if one Lorenz curve lies entirely above another, the economy with the higher curve is more equal. If Lorenz curves cross, such as curves B and C, additional information or assumptions (like poverty focus or middle-class strength) is needed to assess equality.  5.1.3 Gini Coefficients & Aggregate Measures of Inequality The Gini coefficient is among a class of measures that satisfy four highly desirable properties: Anonymity Principle - Inequality is measured without regard to who has higher income. Scale Independence Principle - Inequality is independent of the economy’s size or currency. Population Independence - Inequality does not depend on population size. Transfer Principle (Pigou-Dalton) - Transferring income from richer to poorer (without reversing ranks) increases equality. 5.1.3 Gini Coefficients & Aggregate Measures of Inequality While the Gini coefficient is useful, it is not always perfect—two Lorenz curves that cross can share the same Gini value, complicating inequality comparison. The coefficient of variation (CV) is another statistical inequality measure but the Gini coefficient is preferred in income studies due to its connection to the Lorenz curve. Lorenz curves and the Gini coefficient can also measure inequality in land, education, health, and other assets.  5.1.4 The Ahluwalia-Chenery Welfare Index (ACWI) The Ahluwalia-Chenery Welfare Index (ACWI) is used to evaluate income distribution in assessing growth quality. ACWI values income increases for everyone but assigns greater weight to income gains of lower-income individuals. This approach highlights the importance of income distribution, giving priority to improvements for those with lower incomes. The ACWI is further detailed in Appendix 5.2.  5.2 Measuring Absolute Poverty Absolute poverty focuses on whether individuals can meet basic needs like food, clothing, and shelter. Measuring absolute poverty shifts attention from relative income distribution to the severity of poverty within a population. This measure is critical for understanding the depth and extent of poverty in developing countries.  5.2.1 Income Poverty Income Poverty - Measures the number of people below a specified poverty line (often $1.90/day PPP). Headcount - Number of individuals below the poverty line, denoted as “H.” Headcount Index - The proportion of the population living below the poverty line (H/N). Poverty Line - A fixed level in real terms to measure progress on absolute poverty over time. Local Poverty Line - Can be set by determining the cost of an adequate food basket and adding other essential expenses. Limitations of Headcount - Does not account for the severity of poverty (e.g., $400 vs. $300 per year). 5.2.1 Income Poverty  5.2.1 Income Poverty Total Poverty Gap (TPG) - Total income needed to raise everyone below the poverty line to that level. Average Poverty Gap (APG) - TPG divided by the total population, representing the per capita poverty gap. Normalized Poverty Gap (NPG) - APG divided by the poverty line, giving a unitless measure between 0 and 1 for easier comparisons. Average Income Shortfall (AIS) - TPG divided by the headcount, showing the average income shortfall for the poor. Normalized Income Shortfall (NIS) - AIS divided by the poverty line, yielding a fractional measure of the income shortfall. Foster-Greer-Thorbecke (FGT) index A class of measures of the level of absolute poverty.  5.2.2 Multidimensional Poverty Measurement Poverty cannot be adequately measured with income alone, as Amartya Sen’s capability framework, examined in Chapter¦ 1, makes apparent. To fill this gap, Sabina Alkire and James Foster have extended the FGT index to multiple dimensions.  5.3.1 What is it About Extreme Inequality That’s So Harmful to Economic Development? Throughout this chapter, we are assuming that social welfare depends positively on the level of income per capita but negatively on poverty and negatively on the level of inequality, as these terms have just been defined. The problem of absolute poverty is obvious.  5.3.2 Dualistic Development and Shifting Lorenz Curves: Some Stylised Typologies As introduced by Gary Fields, Lorenz curves may be used to analyze three limiting cases of dualistic development 1. The modern-sector enlargement growth typology, in which the two-sector economy develops by enlarging the size of its modern sector while maintaining constant wages in both sectors. This is the case depicted by the Lewis model in Chapter¦3. It corresponds roughly to the historical growth pattern of Western developed nations and, to some extent, the pattern in East Asian economies such as China, South Korea, and Taiwan. 2. The modern-sector enrichment growth typology, in which the economy grows but such growth is limited to a fixed number of people in the modern sector, with both the numbers of workers and their wages held constant in the traditional sector. This roughly describes the experience of many Latin American and African economies. 3. The traditional-sector enrichment growth typology, in which all of the benefits of growth are divided among traditional-sector workers, with little or no growth occurring in the modern sector. This process roughly describes the experiences of countries whose policies focused on achieving substantial reductions in absolute poverty even at very low incomes and with relatively low growth rates, such as Sri Lanka, and the state of Kerala in southwestern India.  Using these three special cases and Lorenz curves, Fields demonstrated the validity of the following propositions (reversing the order just presented): 1. In the traditional-sector enrichment typology, growth results in higher income, a more equal relative distribution of income, and less poverty. Traditional-sector enrichment growth causes the Lorenz curve to shift uniformly upward and closer toward the line of equality, as depicted in Figure¦5.6.  In the modern-sector enrichment growth typology, growth results in higher incomes, a less equal relative distribution of income, and no change in poverty. Modern- sector enrichment growth causes the Lorenz curve to shift downward and farther from the line of equality, as shown in Figure¦5.7.  Finally, in the case of Lewis-type, modern-sector enlargement growth, absolute incomes rise and absolute poverty is reduced, but the Lorenz curves will always cross, indicating that we cannot make any unambiguous statement about changes in relative inequality: it may improve or worsen. Fields shows that if, in fact, this style of growth experience is predominant, inequality is likely first to worsen in the early stages of development and then to improve. The crossing of the Lorenz curves is demonstrated in Figure¦5.8.  5.3.3 Kuznets’s Inverted-U Hypothesis Simon Kuznets suggested that in early stages of economic growth, the distribution of income will tenc to worsen; only at later stages will it improve. longitudinanal (time-series) plot of changes in the distribution of income  Evidences on Inverted-U Hypothesis Cross Country evidence supports the hypothesis ⚬ Time series data show some countries have been able to grow and improve at the same time Evidences on Inverted-U Hypothesis Approximation of the magnitude of income inequality in developing countries e.g. Zambia - poorest 20% (first quintile) of the population received only 3.6% of the income, while the highest 10% and 20% (fifth quintile) receive 38.9% and 55.2% of the income respectively.  Consider now the relationship, if any, between levels of per capita income and degree of inequality. Are higher incomes associates with greater or lesser inequality, or can no definitive statement be made?  Evidences on Inverted-U Hypothesis Data on income distribution in relation to per capita GNI for a sampling of countries, arranged from lowest to highest in terms of per capita income. RESULT: PER CAPITA INCOMES ARE NOT NECESSARILY RELATED TO INEQUIALITY Growth and Inequality, 1965-1996 Economic Growth Comparison: East Asia had 5.5% per capita growth in the 1960s and 1990s, while Africa experienced a decline of 0.2%. Inequality: Gini coefficients remained largely unchanged in both regions despite differing growth rates. Character of Growth: The nature of economic growth (participation, sector priority, institutional arrangements) affects how growth impacts living standards for the poor. Inequality and Growth Relationship: Higher growth does not necessarily lead to increased inequality.  5.4 Absolute Poverty: Extent and Magnitude Progress on Extreme Poverty ⚬ Clear progress on $1.25-a-day headcount ⚬ Less clear progress on $2.00-per-day headcount (see Figure 5.14) ⚬ Incidence of extreme poverty is uneven Relationship between Growth and Poverty ⚬ Association between growth and poverty reduction ⚬ When it is inclusive, growth reduces poverty ⚬ Lower extreme poverty may also lead to higher growth  5.4 Absolute Poverty: Extent and Magnitude Poor health, nutrition, and education lowers economic productivity of people in poverty, leading directly and indirectly to slower growth Higher income for the poor raises demand for locally produced goods Often, the poor lack access to credit, which constrains entrepreneurship, children’s education, and fertility reduction Social exclusion/injustice associated with poverty also leads to bad government policies that can reduce growth Figure 5.13 Global and Regional Poverty Trends, 1981–2010 Table 5.4 Regional Poverty Incidence, 2010  5.4 Absolute Poverty: Extent and Magnitude MULTIDIMENSIONAL POVERTY INDEX (MPI) A poverty measure that identifies the poor using dual cutoffs for both levels and the number of deprivations. It calculates poverty by multiplying the percentage of people living in poverty by the average percentage of weighted indicators from which these households are deprived. This approach allows for a nuanced understanding of poverty that accounts for multiple dimensions of deprivation: health, education, and standard of living; and each receives equal (that is 1/3 of the overall total) weight.  MPI INDICATORS HEALTH whether any child has died in the family. (1/6) whether any adult or child in the family is malnourished. (1/6) EDUCATION whether not even one household member has completed five years of schooling (1/6) whether any school-age child is out of school for grades 1-8 (1/6) STANDARD OF LIVING lack of electricity (1/18) insufficiently safe drinking water (1/18) inadequate sanitation (1/18) inadequate flooring (1/18) unimproved cooking fuel (1/18) lack of more than one of 5 assets - telephone, radio, TV, bicycle, and motorbike (1/18)  Chronic Poverty Research suggests that approximately one-third of all people who are income poor at any given time are chronically poor, meaning they consistently live below the poverty line without significant relief. Economists Andrew McKay and Bob Baulch offer an estimate of 300 to 420 million people who were chronically poor at the $1-per-day level during the late 1990s. This group represents a persistent segment of the global poor, facing long-term economic and social challenges that hinder their ability to escape poverty. The remaining two-thirds of the poor are vulnerable to poverty, meaning they experience poverty intermittently, often depending on fluctuating economic conditions or specific life events. Generally poor families who sometimes manage to cross the poverty line temporarily when their income improves, but who still remain close to the threshold. Usually nonpoor families who occasionally experience an economic shock, such as a job loss, health crisis, or natural disaster, that temporarily pushes them below the poverty line.  Ultrapoverty An extreme form of poverty that goes beyond income level to include various dimensions of deprivation. It differs from conventional poverty in three key ways: Depth: Ultrapoverty reflects a profound level of deprivation, where basic needs like food, shelter, healthcare, and education are unmet. Length: This type of poverty often spans years or even generations, affecting entire families and communities over the long term. Breadth: Ultrapoverty impacts multiple aspects of life, such as illiteracy, malnutrition, poor health, and lack of access to clean water and sanitation  The interactions among these factors create poverty traps, where challenges in one area (such as malnutrition) reinforce problems in others (such as health and education), making it extremely difficult for individuals or families to escape their circumstances. These poverty traps make ultrapoverty a complex and persistent problem that is more challenging to address than conventional poverty.  Addressing Ultrapoverty In response to the unique challenges faced by the ultrapoor, some non- governmental organizations (NGOs) have created specialized programs to address their specific needs. These programs are designed to reach the ultrapoor directly, offering not only financial support but also training, health services, and other resources. BRAC’s Graduation Programme: Formerly known as the Targeting the Ultrapoor Programme, this initiative combines financial aid, skills training, health services, and other support mechanisms to help the ultrapoor achieve sustainable livelihoods. Grameen’s Beggars Programm: This program, introduced by Grameen Bank, provides microloans and other resources to vulnerable groups, such as beggars, to help them work toward financial independence.  Economic Characteristics in High- Poverty Groups In developing countries, poverty results from a combination of low per capita income and unequal income distribution. While higher per capita income can help reduce poverty levels, it does not necessarily eliminate poverty, as inequality remains a crucial factor. Children and Poverty Woman and Poverty Ethnic Minorities, Indigenous Populations, and Poverty  Children and Poverty Poverty disproportionately affects children, with about half of those in poverty being children. According to the 2018 Multidimensional Poverty Index (MPI), over one-third of children globally live in multidimensional poverty. A 2016 UNICEF report highlighted that in 2013, around 385 million children lived in extreme poverty, representing about half of the extreme poor population, despite children being only one-third of the global population.  Women and Poverty Women make up the majority of the world’s poor, facing higher deprivation levels than men, especially in impoverished communities. Women and children often suffer more severe malnutrition, lack access to healthcare, clean water, sanitation, and education. Household Dynamics: Female-headed households, often without male wage earners, are more susceptible to poverty. Wage Disparities: Women generally earn less than men for similar tasks and have limited access to higher-paying occupations. Rural Economic Challenges: Rural women have less access to resources for income generation and often cannot own property or sign financial contracts independently.  Barriers to Women’s Economic Participation Unpaid and Unrecognized Labor: Much of women’s work in poor households is unpaid, such as collecting firewood, cooking, and childcare, which limits their economic independence. Limited Control over Household Income: In many cultures, male heads of households control income from family businesses or agriculture, even when women provide a significant share of the labor. Social Barriers: Social norms often discourage or prevent women from contributing significantly to household income, leaving their work unrecognized and underappreciated.  Ethnic Minorities, Indigenous Populations, and Poverty In developing countries, poverty often disproportionately affects minority ethnic groups and indigenous populations. These groups frequently experience greater poverty rates, lack of access to essential resources, and fewer opportunities for employment. Ethnic minorities and indigenous peoples face systemic barriers that prevent them from achieving socioeconomic stability, leading to widespread poverty within these groups. As minority groups often feel marginalized in the distribution of resources and job opportunities, tensions can lead to domestic conflicts or even civil wars. Other minority groups across the globe also suffer from similar conditions. This includes the Tamils in Sri Lanka, the Rohingya in Myanmar, the Dalits in India, and the Tibetans in China. These groups face systemic poverty and often lack access to basic social services, infrastructure, and political representation, which deepens their poverty and exclusion. Rural Poverty. Ever two-thirds of the world’s poor live in rural areas, where poverty is exacerbated by limited access to resources, infrastructure, and economic opportunities. Many of these individuals work in agriculture or other resource- based occupations, often as small-scale farmers or low-paid farmworkers. Rural poverty challenges, particularly in agriculture.  Growth and Poverty The debate over whether poverty reduction and economic growth are conflicting or complementary objectives has evolved. Traditionally, some believed rapid growth bypassed the poor and worsened inequality, while others feared that poverty reduction efforts would slow growth by reallocating resources away from investment. However, more recent perspectives suggest that poverty reduction and growth can not only coexist but can also mutually reinforce each other. The debate over whether poverty reduction and economic growth are conflicting or complementary objectives has evolved. Traditionally, some believed rapid growth bypassed the poor and worsened inequality, while others feared that poverty reduction efforts would slow growth by reallocating resources away from investment. However, more recent perspectives suggest that poverty reduction and growth can not only coexist but can also mutually reinforce each other.  Labour and Inclusive Development Global Workforce 3.3 billion people work worldwide; however, most in developing countries have informal, low-wage jobs (e.g., farming, microenterprises). Many people work long hours but earn irregular, low-income, or informal wages, often with insecure property rights. Work and Economic Development Jobs shape future income potential and personal capabilities. It builds skills, confidence, and community engagement. High inequality in labor markets worsens other forms of social inequality.  Labour and Inclusive Development Job Creation Economic growth alone doesn’t guarantee good-quality jobs. People often prefer stable, salaried jobs over informal microenterprises. Long-term solutions focus on creating stable, good-quality jobs. Unpaid Work Many essential jobs (e.g., caregiving, cleaning) are unpaid but vital for society’s functioning. Government Role Effective policies can encourage good job creation; poorly designed policies can hinder it. Barriers to job creation vary by country (e.g., infrastructure, social norms). And addressing women's work barriers requires long-term societal change. 5.8 Policy Options on Income Inequality and Poverty: Some Basic Consideartions  Areas of Intervention To reduce poverty and inequality while maintaining economic growth, developing countries need to adopt effective policies. The focus is on improving the income distribution and raising the income levels of poor people. Here are four main areas where governments can intervene: 1. Altering the Functional Distribution changing how national income is shared between labor (wages), land, and capital (profits, rents). By adjusting how much people earn from each factor (e.g., improving wages or land use), governments can help improve income equality. 2. Mitigating the Size Distribution This refers to how wealth and skills are spread across the population. Governments can help by making sure more people have access to resources, like land or education, so that income is more evenly distributed  Areas of Intervention 3. Moderating (Reducing) the size Distribution at the upper levels Governments can tax the rich at higher rates to reduce their share of income. The money raised through taxes can then be used to fund public services (like education, healthcare, and infrastructure) that benefit everyone, particularly the poor. 4. Moderating (Increasing) the size Distribution at the lower levels Governments can directly increase the incomes of poor people through cash transfers or by creating jobs (such as local infrastructure projects). Public spending on things like education and healthcare can also help improve the living conditions of the poor and provide long-term opportunities for upward mobility. These policies can help reduce inequality, raise the income of the poor, and support sustainable growth by building people's skills and assets.  Altering the Functional Distribution of Income Through Relative Factor Prices: Minimum Wage and Capital Subsidy Debates The price of labor in developing countries is often too high due to government policies or trade unions setting wages above market levels. This can lead to fewer jobs in the modern sector and harm the poor. Lowering the price of labor (e.g., through market-determined wages or subsidies) would encourage employers to hire more workers, increasing jobs and helping reduce poverty. Minimum Wage Debate - Recent studies suggest that minimum wages can reduce poverty, especially for informal-sector workers with low bargaining power (e.g., in jobs like garment stitching).  Altering the Functional Distribution of Income Through Relative Factor Prices: Minimum Wage and Capital Subsidy Debates Capital Price Distortions Government policies often keep capital (e.g., machines, tractors) prices artificially low. Removing these subsidies could encourage businesses to hire more labor and reduce income inequality. Adjusting labor and capital prices could increase jobs and reduce inequality, but the actual impact depends on local conditions and how businesses adjust their production methods.  Modifying the Size Distribution Through Increasing Assets of the Poor Unequal Asset Ownership - The main cause of income inequality is the unequal ownership of assets (land, capital, education). - A small group controls most of the wealth, while the majority has limited access to resources. Policy Focus: Redistributing Assets - Land Reform: Giving land to tenant farmers can help them become smallholders, increasing productivity and income. -Microcredit : Providing affordable credit to small businesses allows entrepreneurs to expand and create jobs. Dynamic Redistribution - Redistribution from Growth: Governments can gradually transfer savings and investments to low-income groups over time, but this is politically challenging.  Modifying the Size Distribution Through Increasing Assets of the Poor Human Capital & Education - Education Access Expanding educational opportunities helps increase income-earning potential for the poor. - Complementary Policies Education must be paired with job creation to fully benefit the poor. Tailored Approaches for Different Groups - Poverty differs by region, gender, and ethnicity. Engaging the poor in setting the agenda for poverty reduction leads to more effective solutions.  Progressive Income and Wealth Taxes 1. Source of Development Finance - To improve living standards for the poor, governments need sufficient funding, which can come from progressive taxation. 2. Types of Taxes - Income Taxes: The rich pay a larger share of their income in taxes than the poor. - Wealth Taxes: Taxes on assets like property and inheritance, targeting wealthier groups. 3. Challenges in Practice - Regressive Reality: In many countries, the poor often pay a higher percentage of their income in taxes through payroll or indirect taxes (e.g., on goods like cigarettes). The wealthy often avoid taxes due to income from assets and tax loopholes. 4. Need for Effective Tax Enforcement - To reduce inequality, governments must enforce progressive taxes on income and wealth, especially for the rich.  Direct Transfer Payments and the Public Provision of Goods and Services Direct Provision of Services: - Public health projects, school lunches, nutritional supplements, clean water, and electrification for remote areas. Subsidized food programs and direct cash transfers for the poor. Challenges of Direct Transfers: 1.Targeting the Truly Poor: Limited resources must be directed to those most in need. 2. Avoiding Dependency:** Safety nets should support, not replace, long-term asset building like education. 3. Maintaining Productivity: Programs shouldn’t discourage participation in productive economic activities. 4. Political Support: Resentment from non-poor groups must be considered. Effective Program Design: - Targeting: Focus on areas with high poverty and goods the rich don’t consume. - Workfare Programs: Require the poor to work on infrastructure projects, benefiting both individuals and the community  Applying Insights from Behavioural Economics to Address Poverty Cognitive Tax of Poverty - Poverty causes stress that impairs cognitive functions (e.g., attention, planning, decision-making). - The poor focus on immediate financial problems, limiting their ability to focus on long-term goals like health and education. Psychological Effects - Higher rates of depression, anxiety, and substance abuse. - Environmental stressors (e.g., noise, poor living conditions) worsen cognitive function. Nutritional Deficits and Cognitive Function - Undernutrition impacts cognitive abilities, reducing productivity. - Providing extra calories improves both cognitive performance and income. Benefits of Cash Transfers - Cash transfers reduce stress and improve mental well-being. - Combined with psychosocial support, they can reduce risky behaviors and improve health outcomes.  Applying Insights from Behavioural Economics to Address Poverty Reminder Systems - Simple reminders (e.g., text messages) help the poor adhere to health regimens and save money. - Reminders help manage cognitive load and encourage better decision-making. Self-Commitment Devices - Programs that encourage future savings (e.g., locking away savings) help people manage cognitive limitations and meet financial goals. Program Design with Behavioral Economics - Simplify applications and make information more accessible to reduce cognitive burden. - "Choice architecture" design can make poverty programs more effective and easier to access.  Summary and Conclusions: The Need for a Package of Policies 1. Correct Factor Price Distortions - Ensure accurate market prices (e.g., fair wages, capital costs). - Promote labor-intensive production and local tech development. - Aim for greater efficiency, job creation, and poverty reduction. 2. Structural Changes in Asset & Power Distribution - Address inequality in asset ownership, power, and access to education/employment. - Focus on long-term, systemic changes to improve conditions for the poor. 3. Progressive Taxation & Direct Transfers - Enforce progressive taxes on income and wealth. - Provide direct cash transfers and public services as a safety net for the poor. 4. Targeted Policies for Community Well-being - Build human/social capital through microfinance, education, health, and community development. - Support both government and NGO-led initiatives to empower the poor.