Urbanization can help reduce income inequality

npj Urban Sustainability volume  2, Article number: 1 (2022 ) Cite this article

The global community has been confronted with rising income inequality, in particular, for those least developed countries (LDCs), since the same level of inequality as in advanced countries would push many LDCs into abject poverty. 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.

Income inequality represents one of the most challenging issues confronted by the global community today. Nevertheless, little that is new has been proposed or implemented to tackle worsening distributions prevailing in both developing and developed economies. Even the controversial suggestion of Piketty (2014) to tax assets falls into the conventional wisdom of fiscal measures used to address inequality for thousands of years. The conventional wisdom inevitably involves tax collection and re-distribution, both of which have costs and distortions. Most importantly, fiscal resources are always limited, even in the affluent industrialized world, where its effects have been proven insufficient to reverse or contain rising inequality1.

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