Reflections on the Macro Foundations of the Middle Class in the Developing World

22 Pages Posted: 4 Mar 2008

Date Written: October 24, 2007

Abstract

In this working paper I define inclusive growth as growth conducive to increasing the size and economic command of the middle class. I suggest a definition of the middle class based on absolute and relative measures of country-based income distributions, and present evidence of change in the size of the "middle class" for selected developing countries. I then review how macroeconomic policies shape the environment and incentives for inclusive growth, focusing on three areas: fiscal discipline, the more rule-based the better; a fair tax and redistribution system; and a business friendly exchange rate.

The adoption of macro policies that favor the middle class lays the foundation for more economically and politically sustainable development. While on the whole sound macro policy that is good for the middle class is also likely to be pro-poor, trade-offs may exist with respect to tax, expenditure and transfer programs and responses to economic shocks. Governments should consider the weighted welfare outcomes of alternative approaches to macro policy, rather than unweighted growth or overly weighted poverty outcomes.

Keywords: macroeconomics, sustainable development, middle class

Suggested Citation

Birdsall, Nancy, Reflections on the Macro Foundations of the Middle Class in the Developing World (October 24, 2007). Available at SSRN: https://ssrn.com/abstract=1101658 or http://dx.doi.org/10.2139/ssrn.1101658

Nancy Birdsall (Contact Author)

Center for Global Development ( email )

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5th floor
Washington, DC 20036
United States
202-416-0700 (Phone)

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