Growth and Poverty Reduction Pyramid

The Growth and Poverty Reduction Pyramid: Methodology and ‎‎2024 Update‎

Aaron Institute developed a model providing visual representation of the conceptual ‎framework for economic strategy planning: The Sustainable Growth and Poverty Reduction ‎Pyramid.‎ ‎ The pyramid provides a comprehensive view of all components within the Israeli ‎economy and society, in a tiered structure. Each tier supports the success of the tier above ‎it and is in turn supported by the activity in the tier below it. The top of the pyramid ‎represents the objective of the economic policy advocated by Aaron Institute: reducing ‎the gaps in GDP per capita and in poverty rates between Israel and the benchmark ‎countries. The second tier contains metrics indicating the success of the Israeli economy in ‎various areas directly required to meet this objective, such as employment and factors of ‎production which support high labor productivity. The third tier represents input ‎components that need to be provided by the government for this purpose; and the fourth ‎tier, which is the base of the pyramid, represents the essential preconditions for economic ‎activity within the national economy.‎

This depiction allows us to examine the relative condition of the Israeli economy compared ‎to the benchmark countries, whose accomplishments in terms of sustainable growth and ‎poverty reduction have been proven in recent decades. Examination of each component ‎across the various tiers reveals the economy’s strengths and weaknesses, making it ‎possible to concentrate research efforts and the necessary government policies towards ‎advancing the strategic objective, while continuously measuring progress.‎

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Our analysis highlights the challenges that the Israeli economy must overcome in order to ‎meet the preconditions for economic growth – national security, the judicial system tasked ‎with protecting the property rights of individuals and preventing corruption, and the ‎budgetary policy. The recent war has led to a significant change in the Israeli fiscal policy, ‎and in the absence of a responsible budgetary policy – one which would aim for budgetary ‎contraction as well as the promotion and nurturing of growth engines – the national ‎economy will not be able to regain the robust growth trajectory which had characterized it ‎prior to the war. The analysis presented in this paper also highlights the need to streamline ‎the public sector, invest in public infrastructures, and promote competitiveness in the ‎economy.‎