15. Poverty and inequality

Question 1

What is monetary poverty?

Answer 1

Usually measured relative to a line in adjusted dollars a day (equivalent of what you can buy)

Question 2

How has the number of people experiencing monetary poverty changed?

Answer 2

The number of individuals experiencing monetary poverty has fallen dramatically in the last 50 years

Question 3

How has the number of people experiencing monetary poverty changed in Africa?

Answer 3

There has been little to no improvement if not an increase

Question 4

Which groups consistently feature among those living below the poverty line?

Answer 4

• Those living in rural areas
• Women
• Ethnic minorities and indigenous populations

Question 5

Why are women typically below the poverty line?

Answer 5

Because they face discrimination in employment, education and health

Question 6

Give a statistic that shows how indigenous populations compare to the poverty line?

Answer 6

80.6% of indigenous Mexicans sit below the poverty line compared to just 17.9% non-indigenous

Question 7

What are some desirable properties of poverty measures?

Answer 7

• Anonymity principle
• Population independence principle
• Monotonicity principle
• Distributional sensitivity principle

Question 8

What are some headcount measures of poverty?

Answer 8

• Poverty headcount (number of individuals below poverty line)
• Headcount ratio

Question 9

What is the headcount ratio?

Answer 9

The number of people who are poor H as a faction of the population N - Therefore, H/N is the fraction who are poor

Question 10

What conditions does the headcount ratio satisfy?

Answer 10

It satisfied anonymity and population indpendence but not full monotonicity and it fails on distributional sensitivity

Question 11

What conditions does the poverty headcount satisfy?

Answer 11

It fails to even satisfy the population independence principle

Question 12

What does measuring poverty by headcount do to policymakers?

Answer 12

It incentivises to report improvements in these measures - this incentivises policymakers to focus efforts toward those closest to the poverty line

Question 13

Give some examples of how policy makers may be biased?

Answer 13

• Government policy may exhibit urban bias emphasising job creation for the poor in cities who are closer to the poverty line
• MFIs often focus on the richest of the poor

Question 14

What was the original poverty objective of the millenium development goals?

Answer 14

Halving poverty

Question 15

What does the total poverty gap measure?

Answer 15

The amount of income required to lift all those defined as poor to the poverty line

Question 16

How can we reach the average poverty gap from the total poverty gap?

Answer 16

Dividing by the population N

Question 17

What does the Poverty Gap Index measure?

Answer 17

The PGI provides a measure of the average extent to which individuals fall below the poverty line as a percentage of the poverty line

Question 18

How do the total poverty gap and related measures differ to the headcount ratio?

Answer 18

They are sensitive to changes in income below the poverty line

Question 19

What properties does the total poverty gap satisfy?

Answer 19

Monotonicity, distributional sensitivity however not independent of population size

Question 20

What properties does the APG and PGI satisfy?

Answer 20

APG and the PGI satisfy all four desirable properties

Question 21

What does the FGT index stand for?

Answer 21

The Foster-Greer-Thorbecke index

Question 22

How does the FGT index compare to the others?

Answer 22

Same as the PGI but to the power of alpha

Question 23

What does a greater alpha measure in the FGT?

Answer 23

The higher the weight placed on those further below the poverty line

Question 24

What is so harmful about inequality?

Answer 24

• The rate of saving in the economy tends to be lower
• High inequality strengthens the political power of the rich
• High inequality of land ownership may be inefficient
• High inequality facilitates corruption and abuse of public office for private gain

Question 25

Where are the most efficient scales for farming found?

Answer 25

At the level of small or medium size farms

Question 26

What is the result of the harmful effects of inequality and what further issues can this cause?

Answer 26

The result can be a lower average income and a lower rate of economic growth when inequality is high, moreover these factors in turn often lead to still more inequality

Question 27

What is the basic premise of the Kuznets curve?

Answer 27

The process of the climate development leads to 1st arise than a fall in inequality. in the early stages of development income is concentrated with a few individuals or groups. This leads to rise and then the quality has new investment opportunities become available as the economy continues to develop factors such as urbanisation education and technological progress contribute to a more equal distribution income.

Question 28

How would you draw the Kuznets curve?

Answer 28

Gini coefficient on the y-axis and gross national income per capita on the x-axis

Question 29

What is the empirical evidence like for the Kuznets curve?

Answer 29

There is evidence globally of an inverted u-shape but this may rely on the presence of countries in Latin America (Fields, 2001) as controlling for these leads to the rlationship dissapearing

Question 30

How are Latin-American countries characterised?

Answer 30

On average latin american countries tend to have higher levels of inequality, but neither especially high or low levels of income per capita distribution

Question 31

What properties are desirable in a good measure of inequality?

Answer 31

• Anonymity
• Population independent
• Scale independence
• Transfer principle

Question 32

What is scale independence?

Answer 32

Inequality measure should not depend on the size of the economy, we want a source of dispersion

Question 33

What is the transfer principle?

Answer 33

All other incomes constant, if we transfer income from a richer to a poorer person - the resulting new income distribution is more equal

Question 34

What is the Lorenz curve?

Answer 34

It describes a country’s distribution of income shares relative to population shares

Question 35

How does the Lorenz curve show us inequality?

Answer 35

How much it greater curvature/ bows out shows the level of inequality

Question 36

How is the Gini coefficient found?

Answer 36

The area between the Lorenz curve and the line of inequality over the total area below the line of inequality

Question 37

What policy options have the potential to reduce inequality and poverty?

Answer 37

• Progressive redistribution of asset ownership
• Progressive taxation
• Transfer payments and public provision of goods and services
• Programs aimed at creating jobs when employment is scarce

Question 38

Why may workfare programs be more effective than welfare programs?

Answer 38

• It is harder to screen the poor without a workfare requirement
• Poor workers have lower opportunity costs of time (so the economy loses little output)
• Non-poor workers have higher opportunity cost of time so they are less likely to participate