Topic 2, Poverty and Inequality Flashcards
how do we currently measure poverty?
we measure it as the percentage of people living with under $1.95 a day.
how do we measure extreme poverty?
we measure it as the percentage of people living with under $1.25 a day.
what are the limitations of measuring absolute poverty?
by setting a poverty line, some individuals might not get picked up by the calculations, although they should be considered poor.
what is the equation for the headcount index?
H = Q/N
Q : number of people under the absolute poverty line
N : total population
what is the equation for the poverty gap?
PG = (Q(z-yq))/z
Q : number of people under the absolute poverty line
z : absolute poverty line
yq : mean income of the poor
what is the equation for the average poverty gap?
APG = PG/N
PG : poverty gap
N : total population
why is it better to measure consumption than to measure income?
- people are better at remembering what they have spent
- higher-income individuals have an incentive to underreport
- the measurement error is not as bad
- it’s a better indicator of permanent income
- it can be very difficult to measure marginalized workers’ income
what is the Kuznets curve hypothesis?
the hypothesis states that, as ccountries first start developing, their income inequality will increase until it reaches a certain point. after that, income inequality will decrease as development continues to grow.
explain adverse selection in the context of cash transfers.
cash transfers can attract higher-income individuals, who will pretend to live below the poverty line in order to access the cash transfer.
explain moral hazard in the context of cash transfers.
cash transfers can affect the way individuals behave. for example, cash transfers can desentivize individuals from working.
what are the three mechanisms for targeting policies?
- indicators (targeting based on some specific characteristics)
- self-targeting (targeting based on self-identity)
- participatory wealth rankings (targeting based on the community, open discussion on who needs the cash transfer and who doesn’t)
define perfect targeting.
each individual who is below the poverty line will receive just enough income to be brought exactly on the poverty line.
(administrative costs + incentive costs + political costs)
define universal basic income.
everyone receives money, to ensure that the poorest person is brought exactly on the poverty line (high total costs)
define mixed targeting programs.
everyone that is below the poverty line gets enough money so that the poorest person is brought to the poverty line. once you’re above the poverty line, the amount transfered falls as your income rises. to a certain threshold of income, people have to start paying taxes.
