EKN 310
Chapter 8 – Government Intervention to reduce
inequality and poverty
Introduction
Previously, Chapter 7 focused on government expenditure in general.
Now, Chapter 8 focuses specifically on the mobilisation of public funds to
alleviate poverty and address income inequality.
Governments intervene in markets for 3 main reasons:
1) To raise revenue – to be able to provide public goods and services
2) To influence behaviour – the govt will encourage certain behaviour (like
competition) and discourage other behaviours (consuming harmful
products)
3) To redistribute resources and income – to achieve a fairer distribution
and reduce poverty
Chapter 8 examines how governments can reduce poverty and extreme
inequality to maximize societal welfare.
Inequality and Poverty in SADC Countries
There are several measures to quantify inequality and poverty:
• Poverty rates
- The percentage of the population living below the poverty line
- The World Bank International poverty line in 2024 was US$3.65 per
person per day.
• Gini coeXicient
- Measures the income distribution inequality
- Values range between 0 and 1, closer to 1 indicated higher inequality.
- This is calculated using the Lorenz curve (cumulative income shares
of the population).
Data from the World Bank, 2018:
, Poverty rates (column 2):
• Poverty is widespread in SADC countries, except for Seychelles (2.5%) and
Mauritius (3.25).
• South Africa’s poverty rate is 37.6%, which is high for a middle-income
country compared to countries with a similar income per capita like Brazil
(8%), Columbia (11.8%) and Indonesia (30.9%)
Gini coeXicients (column 3):
• Several SADC countries have exceptionally high Gini coeXicients.
• SA has 0.630, which is the highest among 163 countries reported by the
World Bank in 2018.
• Namibia, Botswana, Zambia, Lesotho, Mozambique and Eswatini also
have very high Gini coeXicients.
Gaps in income distribution (income shares per quintile for SA):
• Quintile 1 (poorest 20%) = 2.4%
• Quintile 2 = 4.8%
• Quintile 3 = 8.2%
• Quintile 4 = 16.5%
• Quintile 5 (richest 20%) = 68.2%
The lowest 40% of population only earn 7.2% of total income in SA.
Chapter 8 – Government Intervention to reduce
inequality and poverty
Introduction
Previously, Chapter 7 focused on government expenditure in general.
Now, Chapter 8 focuses specifically on the mobilisation of public funds to
alleviate poverty and address income inequality.
Governments intervene in markets for 3 main reasons:
1) To raise revenue – to be able to provide public goods and services
2) To influence behaviour – the govt will encourage certain behaviour (like
competition) and discourage other behaviours (consuming harmful
products)
3) To redistribute resources and income – to achieve a fairer distribution
and reduce poverty
Chapter 8 examines how governments can reduce poverty and extreme
inequality to maximize societal welfare.
Inequality and Poverty in SADC Countries
There are several measures to quantify inequality and poverty:
• Poverty rates
- The percentage of the population living below the poverty line
- The World Bank International poverty line in 2024 was US$3.65 per
person per day.
• Gini coeXicient
- Measures the income distribution inequality
- Values range between 0 and 1, closer to 1 indicated higher inequality.
- This is calculated using the Lorenz curve (cumulative income shares
of the population).
Data from the World Bank, 2018:
, Poverty rates (column 2):
• Poverty is widespread in SADC countries, except for Seychelles (2.5%) and
Mauritius (3.25).
• South Africa’s poverty rate is 37.6%, which is high for a middle-income
country compared to countries with a similar income per capita like Brazil
(8%), Columbia (11.8%) and Indonesia (30.9%)
Gini coeXicients (column 3):
• Several SADC countries have exceptionally high Gini coeXicients.
• SA has 0.630, which is the highest among 163 countries reported by the
World Bank in 2018.
• Namibia, Botswana, Zambia, Lesotho, Mozambique and Eswatini also
have very high Gini coeXicients.
Gaps in income distribution (income shares per quintile for SA):
• Quintile 1 (poorest 20%) = 2.4%
• Quintile 2 = 4.8%
• Quintile 3 = 8.2%
• Quintile 4 = 16.5%
• Quintile 5 (richest 20%) = 68.2%
The lowest 40% of population only earn 7.2% of total income in SA.
