Impact of Inequality, Growth, and Fiscal Policy on Multi-Dimensional Poverty Index: A Study on 111 Countries

Abstract

This study investigates the impact of income inequality, GDP growth, and fiscal policy on the Multidimensional Poverty Index (MPI) across 111 countries from 2010-2020. Using fixed effects panel regression with lag structure. This study analyzes how public expenditures in agriculture, education, health, transport, energy, housing, and social protection influence MPI across different income groups.

Results show that in lower-middle and low-income countries (LMLICs, n=67), a one-unit increase in the Gini index is associated with a 0.003-point reduction in MPI (p<0.05). Agricultural spending exhibits a U-shaped relationship: initial increases reduce MPI (β = -0.041, p<0.05), but benefits diminish beyond 3.2% of GDP. In upper-middle and high-income countries (UMHCs, n=44), only transport expenditure significantly reduces MPI (β = -0.015, p<0.10). Counterintuitively, health spending in UMHCs (β = 0.016, p<0.10) and social protection spending in LMLICs (β = 0.017, p<0.05) show positive associations with MPI, which robustness tests suggest may partially reflect reverse causality. The overall findings highlight the importance of context-specific policy design and institutional quality in maximizing the poverty-reducing impact of public investment.