In December, 2006, the new President of Chile, Michelle Bachelet, convened a workshop on economic inequality

This paper asks how much we should care about changes in Lorenz curves and standard inequality measures when economic growth takes place. I conclude that these changes are of some importance but that other aspects of inequality and poverty are more important. Introduction In December, 2006, the new President of Chile, Michelle Bachelet, convened a workshop on economic inequality. Chile has achieved a 4.2% annual rate of economic growth over the last thirty years, an enviable record indeed for a Latin American country. In the course of this economic growth, indigence and poverty have been falling continuously. Yet, Chile has one of the most unequal distributions of income in Latin America, which is the highest inequality region in the world, and income inequality in Chile remains, in the President’s words, “stubbornly stagnant.” This fact motivated her to convene a workshop on the question of how much should we care about income inequality. This paper, based on the keynote speech I delivered at that workshop, attempts to answer this question, not just for Chile but for the developing countries more generally. Four aspects of income distribution may be distinguished. Income inequality involves comparisons between some incomes and others. Poverty analysis entails identifying who is poor and then quantifying the extent of poverty in the population. 1 This paper is limited to a discussion of relative inequality. Relative inequality is concerned with income ratios, not income differences. Thus, if all incomes grow by the same percentage, relative inequality is unchanged. 2 This paper addresses absolute poverty, which is based on a constant real poverty line, as is used internationally by the World Bank and by individual countries such as the United States. By contrast, relative poverty is based on a changing real poverty line – for example, in Europe, where the European