The Poverty Line

Question 1

what is the poverty line?

Answer 1

threshold of usual consumption/income below which individuals are seen to be poor

Question 2

desirable properties of poverty indicators

Answer 2

1) monotonicity (Sen 1967)
- decrease in y of a poor person should increase poverty increase

2) transfer (Sen 1967)
- transfer of y from poor to less poor should increase index

3) transfer sensitivity
- rise in index declines as y transfer from poor to less poor is taken from richer poor

Question 3

foster, greer, thorbeck (FGT) (1984)

Answer 3

proposed general class of poverty indicators

Question 4

the higher the FGT statistic…

Answer 4

the more poverty in the economy

Question 5

what is the headcount index

Answer 5

• measures proportion of population counted as poor
• simplest to construct
• easy to understand

Question 6

weaknesses of the headcount index

Answer 6

• doesn’t take intensity into account
• doesn’t indicate how poor the poor are

Question 7

what is the poverty gap index

Answer 7

adds up extent to which individuals fall below poverty line and express as percentage of poverty line
- i.e. amount of income necessary to bring everyone in poverty right up to the poverty line, divided by total population

Question 8

what does the poverty gap index tell us?

Answer 8

1) minimum cost of eliminating poverty using targeted transfers is sum of all poverty gaps in a population
- interpretation only reasonable if transfers could be made perfectly efficiently, for instance with lump sum transfers, which is implausible

2) maximum cost of eliminating poverty would be to provide everyone with enough to ensure they’re not below poverty line
- useful indicator of potential savings of targeting

Question 9

weakness of poverty gap index

Answer 9

doesn’t take into account inequality

Question 10

murdoch (1998)

Answer 10

poverty statistic that is decomposable by population sub-groups and is also sensitive to how expenditure is distributed among the poor