Urbanization can help reduce income inequality

The global community has been confronted with rising income inequality, in particular, for those least developed countries (LDCs). This paper focuses on income inequality in developing countries, particularly LDCs. First, we demonstrate the infeasibility of fiscal measures in resolving income inequality even in developed countries. Second, we show that inequality in LDCs can be largely explained by urban-rural gap. Third, we uncover the benign impacts of urbanization on urban-rural gap. This leads us to propose an out-of-box strategy—containing income inequality by promoting well-managed urbanization. Fourth, we reveal a misperception that may have contributed to the neglect of urban-rural gap in constituting national inequality. This has possibly caused anti-urbanization mentalities and practices, with adverse distributional consequences. Finally, we provide evidence-based policy suggestions aimed at reducing income inequality and poverty—two major goals of SDGs.

Guanghua Wan, Xiaoling Zhang, Mengxue Zhao