OECD Guidance on Reducing Poverty and Inequalities through Development Co‑operation

Chapter 1.  Understanding poverty, inequalities and their interlinkages

Abstract

This chapter sets the foundation for the Guidance by clarifying the key concepts and definitions related to poverty and inequalities. It explores the distinctions, similarities and links between poverty and inequalities, acknowledging their varied definitions. Poverty focuses on people living in deprivation, while inequalities emphasise the gap between individuals or groups. Both affect multiple and intersecting dimensions of people’s rights, resources, opportunities and resilience. They share immediate and structural causes, and are connected through complex and mutually reinforcing dynamics, with inequalities often contributing to the persistence of poverty and vice versa.

1.1. Poverty relates to deprivation, while inequalities centre on distributional differences

Poverty refers to a state of deprivation where living standards fall below a set threshold, which can be fixed across time and space (absolute poverty) or vary according to societal standards (relative poverty). This threshold can be set at the level of extreme poverty, reflecting deprivation in basic needs such as food, clothing and shelter; capture a state where socially acceptable standards of living are not met; or refer to situations where individuals cannot live the lives they value and lack the freedom and opportunities to pursue their goals and participate fully in society. Poverty constitutes a denial of human rights and undermines human dignity. It is not static: people can experience chronic poverty (lasting over five years, often lifelong and generational), transitory poverty (temporary, triggered by shocks such as environmental disasters or job loss), or be vulnerable to falling into poverty due to limited resilience to shocks. Addressing poverty requires lifting people above these deprivation thresholds and keeping them there, recognising that they can move in and out of poverty in non-linear ways.

Inequalities refer to disparities between individuals or groups. They are inherently relational and usually measured in relative terms, reflecting how individuals or groups fare in relation with others, for example how the most deprived groups compare with the most advantaged, across different welfare measures (e.g. income, wealth, health, education or life expectancy). Inequalities are commonly analysed through the prism of vertical inequalities (differences between individuals or households), horizontal inequalities (differences between identity-based groups), spatial inequalities (differences between areas, regions or locations) and within- or between-country inequalities. They can also take the form of intra-household inequalities (disparities within households, often affecting children, women and the elderly), intergenerational inequalities (differences between generations shaped by social mobility and how advantages and disadvantages are passed down between generations) and life-cycle disparities (how advantages or disadvantages can accumulate or change over an individual’s lifespan). Tackling inequalities thus involves reducing gaps between individuals or groups.

Infographic 1.1. Poverty focuses on deprivation, inequalities on distributional differences

Poverty and inequalities are defined, conceptualised and framed in many ways, reflecting their complexity and context-specific nature. Table 1.1 sets out definitions of poverty and inequalities according to their most common usage in development co-operation and provides a reference point for this Guidance. It does not aim to capture the diversity in how these concepts are defined and understood. Such variations stem from the fact that poverty and inequalities are multifaceted (see Section 1.2) and context specific, grounded in the perceptions of those who experience them. For example, Shona-speaking people in Zimbabwe distinguish between extreme poverty, financial poverty and the lack of basic necessities (Gweshengwe and Hassan, 2020[1]), while many Indigenous Peoples’ belief systems centre around equality between past and future generations (UNFCCC, 2026[2]).

In some contexts, the term "poverty" itself can carry negative connotations. It can be perceived as stigmatising or implying that deprivation is inherent rather than the result of historical or current unequal power dynamics. Related concepts that signal greater agency and frame people's situation more positively – for example in terms of livelihoods, resilience, well-being, social inclusion or community empowerment – may therefore be more resonant alternatives. Similar sensitivities can apply to the term "inequality" which can be considered as politically charged or externally imposed. Alternative framings – such as equal opportunity, social cohesion, inclusive development or shared prosperity – may be more politically viable entry points for dialogue. Such preferences vary across both contexts and actors, including between governments, civil society and marginalised groups.

How poverty and inequalities are defined and conceptualised reflects their complexity and context-specific nature, revealing differing views on what constitutes acceptable minimum living standards and tolerable disparities.

Different definitions also reveal differing perspectives on what constitutes acceptable minimum living standards and tolerable disparities. While there is a widespread consensus on the need to eradicate extreme poverty and alleviate poverty more broadly, debates persist on the adequacy of international monetary poverty lines. It is similarly largely accepted in international development circles that horizontal inequalities are inherently unjust (UNESCO, 2016[3]) and that every person is entitled to equal opportunity (Alston, 2015[4]). However, the recent global backsliding against human rights, including gender equality, highlights how precarious such consensus can be. In some contexts, ideologies and norms that uphold inequalities and the marginalisation of specific groups are socially, culturally and institutionally entrenched, as seen in caste and similar systems of inherited status (UN, 2017[5]; UN Women, 2026[6]). Furthermore, while there is broad recognition that high levels of economic inequality are harmful for growth (OECD, 2015[7]), poverty reduction (World Bank, 2024[8]; De Schutter, 2021[9]) and human rights (Alston, 2015[4]) and despite widespread global public support for reducing economic inequality, there is no agreed benchmark for where this level lies. For instance, the IMF finds that a Gini coefficient of over 0.27 is associated with lower economic growth (Grigoli and Robles, 2017[10]), the World Bank sets the threshold of high economic inequality at a Gini of 0.40 (Haddad et al., 2024[11]), advocacy groups argue that countries should aim for a Gini below 0.25 (DFI/Oxfam/CIC, 2023[12]), and academics are laying out the foundations for an extreme wealth line (Robeyns, Vaughan and Burchardt, 2026[13]).

International thresholds and quantifiable targets can help steer progress, but views on acceptable levels of poverty and inequalities differ across and within societies, and national targets are best shaped through democratic processes, within the framework of universally recognised human rights.

Table 1.1. Common definitions of poverty and inequalities

	Definition
Poverty	A state in which individuals or households live below a defined threshold of deprivation, characterised by insufficient resources and opportunities and limited ability to exercise rights and cope with and adapt to shocks and stresses.
Multidimensional poverty	Conceives poverty as an experience of overlapping deprivations across multiple dimensions of peoples’ lives, including economic (income, wealth, resources and infrastructure), social (education, health, food, water and housing), political (rights, freedom, representation and influence) and environmental (access to natural resources and exposure to hazards) dimensions (OECD, 2001[14]; OPHI, n.d.[15])
Monetary poverty	A condition where an individual or household lives below a level of income or consumption that meets a “minimum needs standard” enabling them to satisfy their basic needs. The World Bank has set three poverty lines to measure monetary poverty in different economic contexts: the international extreme poverty line at USD 3.00 per person per day, and poverty lines of USD 4.20 for lower-middle income countries (LMICs) and USD 8.30 for upper-middle income countries (UMICs) (World Bank, 2024[8]).
Absolute poverty	Poverty is considered as absolute when the set minimum of resources does not change as the general standards of living change over time, except to reflect changes in the general price levels. Absolute poverty is generally associated with a low threshold of needs and with the notion of “extreme poverty”.
Relative poverty	Refers to deprivations that are based on a societal perspective of living standards, often determined by the local context. In many high-income countries, relative poverty is commonly measured as the share of people living in households with incomes below 60% of the national median.
Inequalities	Differences between individuals or groups, characterised by the unequal distribution of resources and opportunities, and unequal ability to exercise rights and to cope with and adapt to shocks and stresses.
Vertical inequalities	Inequalities between individuals or households, comparing the distribution of individuals across a spectrum (Yang, 2017[16]). The most common measures are income, consumption or wealth inequalities but they could also be applied to non-monetary dimensions such as health or education (OECD, 2024[17]).
Horizontal inequalities	Also defined as group-based inequalities or social inequalities. Refers to inequalities experienced by individuals that are part of groups with a shared and socially constructed identity based on race, ethnicity and national origin; minority or Indigenous status; faith and religion; socio-economic status; education level; class; caste; geographic location; age; ability; sexual orientation; gender identity and sex characteristics; or migration status (OECD, 2018[18]; OECD, 2024[19]).
Gender inequality	A form of horizontal inequality, gender inequality refers to disparities in rights, opportunities and outcomes based on gender. It often focuses on the empowerment of women and girls, who typically face greater disadvantages and systemic barriers than men (OECD, 2022[20]).
Spatial inequalities	Disparities across different areas, regions, locations or geographies including urban-rural inequalities and intra-urban inequalities.
Between-country inequality	Inequality between different countries in the world. Sometimes called world inequality when population weights are applied and international inequality when populations are not weighted (Sumner and Saumik, 2025[21]).
Global inequality	Refers to inequality measured across all individuals worldwide, regardless of their country of residence, capturing disparities between people globally (World Bank, 2023[22]).
Equity	Refers to fairness and justice in opportunities, access and outcomes, recognising that different people and groups may require differentiated support to overcome structural disadvantages and have comparable life chances.

1.2. Poverty and inequalities are multidimensional and intersecting, affecting people’s rights, resources, opportunities and resilience

Poverty and inequalities are experienced across multiple dimensions of people’s lives. These dimensions commonly include:

• Economic dimensions: income or livelihoods (from labour or capital), wealth (financial assets or land), material well-being, consumption, employment and productive resources (including access to adequate infrastructure, financial services, internet and technology) and time poverty and unpaid work (lack of leisure time).

• Social dimensions: education, health care, nutritious food, drinking water, sanitation, social protection, access to electricity and housing, well-being, and cultural rights and traditional livelihoods. This dimension also captures less visible relational aspects (i.e. social or institutional maltreatment, isolation or exclusion) and psychological impacts (i.e. disempowerment, stress, stigma, struggle and resistance).

• Political dimensions: rights, political freedoms and human security; voice, participation, citizen engagement and representation; access to justice, legal protection, documentation and legal identity; inclusive governance and institutional inclusion; and power and influence over public policies and political processes.

• Environmental dimensions: access to and dependence on natural resources (e.g. clean water, forests); healthy ecosystems and safe environments (e.g. adequate air quality), as well as exposure, vulnerability and resilience to environmental hazards and climate change impacts.

There is broad consensus on the multidimensional nature of poverty and inequalities. However, the specific dimensions considered vary across indices and analytical frameworks (see Table 1.2). The selection of dimensions is shaped by the focus of the framework, disciplinary perspectives, data availability and context-specific considerations (Sida, 2024[23]).

Table 1.2. Common frameworks or indices of multidimensional poverty, inequalities and well-being

Frameworks or indices	Dimensions covered
Commitment to Reducing Inequality (Oxfam[24])	Public services, labour rights and progressive tax.
Core Dimensions of Poverty (OECD, 2001[14])	Economic, human, protective, political and socio-cultural.
Egalitarian democracy index (World Bank[25])	Equal access/distribution of power; equal distribution of public resources and equal protection of civil liberties.
Fragility Framework (OECD[26])	Economic, environmental, human, political, security and societal.
Framework for measuring equitable, inclusive and sustainable well-being and progress (UN, 2026[27])	Foundational principles (peace, human rights and respect for the planet); current well-being (material conditions and work, health, education, security, subjective well-being, social cohesion, quality of institutions and environmental quality); equity and inclusion (wealth inequality, income inequality, poverty, work inclusion, regional inequalities and overlapping deprivations); and sustainability and resilience (produced capital, human capital, social capital, institutional capital and natural capital).
Hidden Dimensions of Poverty (Bray et al., 2019[28])	Disempowerment; suffering in body, mind and heart; struggle and resistance; institutional maltreatment; unrecognised contributions; lack of decent work; insufficient and insecure income.
Human Development Index (UNDP[29])	Long and healthy life, knowledge and a decent standard of living.
Inequality-adjusted Human Development Index (UNDP[30])	Long and healthy life, knowledge and a decent standard of living, adjusted for inequality in the distribution of each dimension across the population.
Multidimensional Inequality Framework (LSE/SOAS/Oxfam, n.d.[31])	Life and health; physical and legal security; education and learning; financial security and dignified work; comfortable, independent and secure living conditions; participation, influence and voice; and individual family and social life.
Multidimensional Poverty Analysis (Sida[23])	Resources, opportunity and choice, power and voice and human security. Underlying causes of poverty are sought within four contexts: economic and social, political and institutional, environment and climate, and peace and conflict.
Multidimensional Poverty Index (OPHI/UNDP[32])	Education, health and living standards.
Multidimensional Poverty Measure (World Bank[33])	Monetary, education and access to basic infrastructure.
Multidimensional Vulnerability Index (UN[34])	Structural vulnerabilities (economic, environmental and social) and structural resilience (economic, environmental and social).
People at high risk from climate-related hazards (World Bank[35])	Exposure to climate-related hazards, inability to cope with losses and physical propensity to experience severe loss.
Well-being Framework (OECD[36])	Income and wealth, housing, work and job quality, health, knowledge and skills, environmental quality, subjective well-being, safety, work-life balance, social connections and civic engagement (tracking averages, deprivations and inequalities between groups and top and bottom performers). Also covers well-being of future generations (natural, economic, human and social).

Note: This table provides a non-exhaustive list of frameworks or indices, with an overview of key dimensions covered by each framework or index. Given space constraints, the full scope of some frameworks may not be fully reflected here; readers are encouraged to consult the original sources for comprehensive descriptions.

Dimensions of poverty overlap, while dimensions of inequalities intersect and reinforce one another across people’s lives and over time. Co-deprivations are common: for instance, an estimated 60% of those experiencing poverty globally simultaneously lack sanitation, housing and cooking fuel (Suppa, Alkire and Nogales, 2022[37]). Different forms of inequalities also often interact with, and compound, one another. Intersectionality theory highlights how horizontal inequalities reinforce disadvantage by intersecting with each other and with vertical inequalities, such as when women from ethnic minorities facing poverty disproportionately hold informal and precarious jobs (Cho, Crenshaw and McCall, 2013[38]). These overlapping deprivations and intersecting inequalities shape individual life trajectories, as advantages and disadvantages compound differently across the life course and over generations (De Schutter, 2021[9]). Economic, demographic, socio-cultural and political forces can also change how these inequalities are reproduced over time (Milanovic, 2016[39]).

Overlapping deprivations and intersecting inequalities shape individual life trajectories, as advantages and disadvantages compound differently across the life course, over generations and depending on structural forces.

Poverty and inequalities across all dimensions shape people’s ability to exercise their rights, access and control resources, seize opportunities and build resilience to shocks and stresses (see Table 1.3). In this sense, poverty refers to deprivation of rights, resources, opportunities and resilience, while inequality refers to their uneven distribution and unequal access between individuals or groups. Resilience, in relation to poverty and inequalities, reflects how individuals and groups are unequally exposed to shocks and stressors, and differ in their capacity to anticipate, cope with, adapt to and recover from shocks without falling into (or deeper into) poverty. The effects of poverty and inequalities across these aspects of life are cumulative and reinforcing: disadvantages in one often translate into constraints in others, limiting people’s ability to improve their well-being over time.

Table 1.3. Poverty and inequalities affect rights, resources, opportunities and resilience across multiple dimensions

	Poverty	Inequalities
Rights, power and agency	Poverty is characterised by deprivation in the enjoyment of civil, political, economic, social and cultural rights, limiting the agency to shape one’s life. People living in poverty often face institutional and structural barriers in accessing their rights and entitlements such as the right to an adequate standard of living, health, housing, food, safe water and education. Poverty is associated with weak political representation, particularly the lack of power to influence political agendas and pursue collective action.	Inequalities are reflected in systematic differences between individuals and groups in the enjoyment of civil, political, economic, social and cultural rights, representation and power. Economic inequalities can manifest in unequal political voice, influence over decision making and political capture, and the uneven realisation – or violation – of civil and political rights. This can manifest as systemic institutional exclusion or marginalisation, such as restricted access to social services and/or social exclusion – for example, discriminatory community ostracism.
Resources and outcomes	Poverty is associated with insufficient resources to live a dignified life, such as income, food, water and sanitation, literacy, skills, health, productive assets and land. People living in poverty do not possess or have access to, or power over, resources that can be used to sustain a decent living standard, meet basic needs and improve their lives. The lack of resources and assets traps people in poverty leading to persistently worse long‑term outcomes	The uneven distribution of resources is generally analysed through the lens of inequality of outcomes, which occurs when individuals or groups do not achieve the same standards of living as others, typically across income, wealth, educational attainment or health status, and depends on people’s talent and effort as well as circumstances beyond their control. Unequal starting resources lock people into worse outcomes and often accumulate over time, reducing their chances of achieving upward mobility.
Opportunities and choice	Poverty manifests in limited opportunities and constrained choice to develop, access or use resources to move out of poverty. Deprivations – such as limited access to education, health and secure livelihoods – result in limited opportunities, reduced agency and diminished participation in social and economic life. This limits individuals’ opportunities and ability to make meaningful choices that enable them to pursue lives they value.	Inequality of opportunities refers to individuals or groups not having the same opportunities to develop their human potential, due to circumstances beyond their control (e.g. gender, ethnicity, identity or family background) and structural barriers or discrimination such as unequal access to employment or education. These structural barriers constrain people’s freedom to pursue the life they want to lead. Unequal outcomes lead to unequal opportunities, and vice versa.
Resilience to shocks and exposure to risk	Poverty is associated with heightened exposure to environmental, economic, social and political risks, alongside reduced resilience to shocks and diminished coping and adaptive capacity due to limited resources, assets and safety nets. This risk makes it harder to exit poverty: improving livelihoods (e.g. through upskilling) is highly risky without safety nets – this pushes people in poverty to prioritise short‑term survival over long‑term gains. Environmental pressures – including droughts, floods, extreme heat and other hazards – pose significant risks to people living in poverty, and resilience depends on their capacity to access jobs, services, infrastructure and social protection. Conflict and violence also increase deprivations in education, health, security and livelihoods.	Inequalities in risk and resilience are reflected in differences between individuals or groups’ exposure to risk and their capacity to anticipate, withstand and recover from shocks. Privileged groups typically face lower exposure and greater coping capacity, while disadvantaged groups are more exposed to environmental hazards, violence and instability, and experience more severe and lasting impacts. Many forms of inequality involve heightened exposure to specific risks – marginalised ethnic groups can face greater human security threats, while the impacts of natural disasters can create or reinforce spatial inequalities in exposure and impact. Resilience is shaped by available assets, resources and social and institutional support, which are often unevenly distributed due to structural inequalities.

Source: Authors’ compilation, based on Alston (2015[4]), Atkinson (2015[40]), De Schutter (2021[9]), IPCC (2022[41]), OECD (2025[42]), OHCHR (2012[43]), OPHI/UNDP (2024[44]), Sen (1999[45]), Shepherd et al. (2014[46]), (Sida, 2017[47]), UN DESA (2015[48]) World Bank (2024[49]; 2026[50]).

Infographic 1.2. Poverty and inequalities manifest across multiple and intersecting dimensions of people’s lives

1.3. Poverty and inequalities share immediate and structural causes and often drive one another

The persistence and dynamics of poverty and inequalities in low- and middle-income countries (L&MICs) stem from a combination of shared immediate and structural causes, shaped by policy choices in both national and global contexts (Sumner, unpublished[51]). Immediate and structural causes are interlinked, with deep structural drivers creating and reinforcing the conditions that give rise to and perpetuate the immediate causes. This underscores the need for policies addressing both immediate causes and structural drivers that perpetuate marginalisation and deprivation.

Immediate causes refer to the individual characteristics, circumstances and choices that can be considered the direct cause of people’s exposure to poverty and inequalities at the micro level. These include insufficient or unequal resources and opportunities, low or uneven resilience to shocks, and limited or unequal access to or realisation of rights. Examples include insecure employment and low wages, inadequate access to basic services due to financial or geographic barriers, and personal characteristics exposing individuals to discrimination such as gender, age or ethnicity. Immediate shocks – illness, job loss and climate events – coupled with longer-term conditions like disability or ageing can further increase vulnerability. While immediate causes operate at the micro level, they are embedded within broader systems that connect to structural drivers, for instance norms embedded into institutions which limit access to services for marginalised groups.

Structural causes refer to the root causes of poverty and inequalities at the macro level. These are the deeper, long-term institutional, historical, political, cultural and economic forces or systems – both formal and informal – that perpetuate limited and unequal access to rights, resources, opportunities and resilience (UNRISD, 2023[52]). Socio-cultural structures reinforce this by embedding social norms, belief systems and hierarchical ideologies that shape who is valued, whose voices are heard and whose access to opportunities is constrained (UN Women, 2026[6]). Structural causes operate nationally through the political economy, governance and taxation; and globally through trade and debt dynamics, financial flows, climate vulnerabilities, and unequal access to technology and intellectual property. Legacies of colonialism have resulted in deeply entrenched patterns of power and wealth that reinforce inequalities both between and within countries (Acemoglu, Johnson and Robinson, 2002[53]). Contemporary dynamics such as growing financialisation and privatisation, the global debt architecture and the rise of artificial intelligence (AI) are further deepening inequalities between and within countries (Kilinc and Kilinc, 2025[54]; UNCTAD, 2023[55]; Muldoon, 2024[56]).

Infographic 1.3. Immediate and structural causes of poverty and inequalities

Beyond these shared drivers, poverty and inequalities are linked through complex and mutually reinforcing dynamics, with one often contributing to the persistence of the other. Their relationship varies across countries and does not follow a uniform pattern.

Poverty and inequalities do not always evolve in the same direction. Income inequality can fall without poverty falling if changes in the income distribution occur above the poverty line. Conversely, a country might reduce extreme poverty through social policies that raise household consumption above the extreme poverty line, while still experiencing rising inequality (OECD, 2024[57]). 

Inequalities often contribute to the persistence of poverty. Evidence shows that reducing income inequality can directly lower poverty and make growth more effective in reducing poverty (Bourguignon, 2004[58]; Lakner et al., 2022[59]). Structural inequalities in access to services, opportunities and power reproduce poverty across generations (De Schutter, 2021[9]). Political inequality also hinders poverty reduction through elite capture: when political power is concentrated among economic elites, policies are more likely to favour capital over labour, reinforcing income inequality and entrenching poverty. Conversely, strong labour representation and inclusive political coalitions tend to support redistribution and poverty reduction (Brady, Blome and Kleider, 2016[60]; Piketty, 2020[61]; Oxfam, 2026[62]).

Poverty can also reinforce inequalities. People living in poverty often face discrimination, social exclusion and institutional barriers leading to reduced access to resources and the denial of rights. These dynamics can in turn deepen inequalities in voice, representation, opportunities and outcomes over time, further marginalising those already disadvantaged (Bray et al., 2019[28]).

Poverty and inequalities are linked through complex and mutually reinforcing dynamics, with one often contributing to the persistence of the other. Reducing income inequality can directly lower poverty and make growth more effective in reducing poverty.

Scope remains for better understanding and unpicking how these structures connect, and for closer integration of policies aiming to reduce poverty and inequalities. More integrated, conscious and strategic approaches to address poverty and inequalities jointly – including through development co-operation – can accelerate progress. The subsequent chapters of this Guidance explore what this means concretely for development partners. Spanning planning and design, resource allocation and mobilisation, partnerships, and monitoring and evaluation, they offer entry points for more strategic and integrated approaches to reducing poverty and inequalities together.

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