15. Poverty and inequality Flashcards
Links closely to textbook Chapter 5
What is monetary poverty?
Usually measured relative to a line in adjusted dollars a day (equivalent of what you can buy)
How has the number of people experiencing monetary poverty changed?
The number of individuals experiencing monetary poverty has fallen dramatically in the last 50 years
How has the number of people experiencing monetary poverty changed in Africa?
There has been little to no improvement if not an increase
Which groups consistently feature among those living below the poverty line?
- Those living in rural areas
- Women
- Ethnic minorities and indigenous populations
Why are women typically below the poverty line?
Because they face discrimination in employment, education and health
Give a statistic that shows how indigenous populations compare to the poverty line?
80.6% of indigenous Mexicans sit below the poverty line compared to just 17.9% non-indigenous
What are some desirable properties of poverty measures?
- Anonymity principle
- Population independence principle
- Monotonicity principle
- Distributional sensitivity principle
What are some headcount measures of poverty?
- Poverty headcount (number of individuals below poverty line)
- Headcount ratio
What is the headcount ratio?
The number of people who are poor H as a faction of the population N - Therefore, H/N is the fraction who are poor
What conditions does the headcount ratio satisfy?
It satisfied anonymity and population indpendence but not full monotonicity and it fails on distributional sensitivity
What conditions does the poverty headcount satisfy?
It fails to even satisfy the population independence principle
What does measuring poverty by headcount do to policymakers?
It incentivises to report improvements in these measures - this incentivises policymakers to focus efforts toward those closest to the poverty line
Give some examples of how policy makers may be biased?
- 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
What was the original poverty objective of the millenium development goals?
Halving poverty
What does the total poverty gap measure?
The amount of income required to lift all those defined as poor to the poverty line
How can we reach the average poverty gap from the total poverty gap?
Dividing by the population N
What does the Poverty Gap Index measure?
The PGI provides a measure of the average extent to which individuals fall below the poverty line as a percentage of the poverty line
How do the total poverty gap and related measures differ to the headcount ratio?
They are sensitive to changes in income below the poverty line
What properties does the total poverty gap satisfy?
Monotonicity, distributional sensitivity however not independent of population size
What properties does the APG and PGI satisfy?
APG and the PGI satisfy all four desirable properties
What does the FGT index stand for?
The Foster-Greer-Thorbecke index
How does the FGT index compare to the others?
Same as the PGI but to the power of alpha
What does a greater alpha measure in the FGT?
The higher the weight placed on those further below the poverty line
What is so harmful about inequality?
- 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
Where are the most efficient scales for farming found?
At the level of small or medium size farms
What is the result of the harmful effects of inequality and what further issues can this cause?
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
What is the basic premise of the Kuznets curve?
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.
How would you draw the Kuznets curve?
Gini coefficient on the y-axis and gross national income per capita on the x-axis
What is the empirical evidence like for the Kuznets curve?
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
How are Latin-American countries characterised?
On average latin american countries tend to have higher levels of inequality, but neither especially high or low levels of income per capita distribution
What properties are desirable in a good measure of inequality?
- Anonymity
- Population independent
- Scale independence
- Transfer principle
What is scale independence?
Inequality measure should not depend on the size of the economy, we want a source of dispersion
What is the transfer principle?
All other incomes constant, if we transfer income from a richer to a poorer person - the resulting new income distribution is more equal
What is the Lorenz curve?
It describes a country’s distribution of income shares relative to population shares
How does the Lorenz curve show us inequality?
How much it greater curvature/ bows out shows the level of inequality
How is the Gini coefficient found?
The area between the Lorenz curve and the line of inequality over the total area below the line of inequality
What policy options have the potential to reduce inequality and poverty?
- 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
Why may workfare programs be more effective than welfare programs?
- 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
