Analysing a large sample of 1980-2004 unbalanced panel data, this study presents comparative global evidence on the role of income inequality in poverty reduction.

The evidence involves both an indirect channel via the tendency of high inequality to decrease the rate at which income is transformed to poverty reduction, and the tendency of rising inequality to increase poverty.

The study finds that the responsiveness of poverty to income growth is a decreasing function of inequality, and that the income elasticity of poverty is actually smaller than the inequality elasticity. Thus, income distribution can play a more important role than might be traditionally acknowledged. Found also is a large variation across regions (and countries) in the poverty effects of inequality.