Poverty lines

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Poverty lines

• Michael Lokshin,
• DECRG-PO
• The World Bank

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Problem

• Poverty rate in urban areas declined by 25
  Poverty rate in rural areas declined by 25.
• Overall poverty rate in the country declined by
  more than 50.

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Solution
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Poverty lines

• Michael Lokshin,
• DECRG-PO
• The World Bank

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Objective poverty line

• Methods found in practice
• Cost-of-basic-needs method
• Poverty line cost of a bundle of goods deemed
  sufficient for basic needs.
• Food-share version
• Cost of food-energy requirement
  Food-share of poor
• Food-energy intake method
• Expenditure or income at which food-energy
  requirements are met on average for each
  region/socio-economic group

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Objective poverty lines WB approach

• Food Poverty Line
• Determine food requirements CR
• Determine the cost of one calorie C
• Calculate the cost of food poverty line as a
  product of food energy requirements and the cost
  of one calorie
• FPL CRC
• Total Poverty Line
• Determine the share of non-food consumption in
  two groups of households (SNF)
• TPLFPL/(1-SNF)

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Food Poverty Line

• Determine food caloric requirements CR
• WHO calorie requirements for different age-gender
  group
• Other criterions could also be used protein,
  fat, carbohydrates, and micronutrients
  requirements.
• If only one poverty line calculate average
  caloric requirements for the whole country
• Caloric requirements could be similarly
  calculated for the different regions in the
  country

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Food Poverty Line Example
Table Estimated caloric requirements for
Georgia, 2003
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Food Poverty Line Cost of calorie

• Determine cost of one calorie
• Richer households consume more expensive
  calories.
• Estimate cost of a calorie for households around
  the poverty line
• But we do not know yet what is the poverty line
• Use approximate region based on prior estimates

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Food Poverty Line Cost of calorie

• Calculate caloric content of all food consumed by
  a household (CC)
• Calculate total household food expenditure (FE)
• Democratic and plutocratic approach
• Plutocratic
• Democratic
• The results will be different. We use democratic
  approach

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Food Poverty Line

• Note that we do not explicitly define any food
  basket
• Calculate Food Poverty Line
• FPLCDCR
• Food poverty line could be calculated for the
  country as a whole or you can derive FPL for
  different regions

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Total Poverty Line Lower PL

• We have no criteria/norm on non-food portion of
  the poverty line.
• Lower poverty line
• Estimate share of non-food expenditure in the
  total consumption of households whose total
  expenditure equals to FPL
• TEFPL
• Data might contain no or very few households like
  that.
• Use a band around FPL to calculate this share.
  For example use band /- 10 of FPL. Compare with
  a smaller band /-5.

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Total Poverty Line Upper PL

• Upper poverty line
• Estimate share of non-food expenditure (SNF) in
  the total consumption of households whose food
  expenditure equals to FPL
• FEFPL
• Data might contain no or very few households like
  that.
• Use a band around FPL to calculate this share.
  For example use band /- 10 of FPL. Compare with
  a smaller band /-5.
• Total Poverty line TPLFPL/(1-SNF)

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Subjective poverty lines MIQ

• The Minimum Income Question (MIQ)
• "What income do you consider to be absolutely
  minimal, in that you could not make ends meet
  with any less?
• Is this method suitable for developing countries?
  Not always
• Can one estimate z without the MIQ?

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Subjective poverty lines CAQ

• Consumption adequacy question
• Concerning your familys food consumption over
  the past one month, which of the following is
  true?
• Less than adequate ...1
• Just adequate ........ 2
• More than adequate.. .3
• "Adequate" means no more nor less than what
  the respondent considers to be the minimum
  consumption needs of the family.
• Subjective poverty lines could be derived
  from CAQ

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Subjective poverty lines CAQ
Objective and CAQ subjective poverty rates by
household size. Madagascar 2003 .
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Subjective poverty lines ELQ

• Economic Welfare Question (Cantril ladder)
• Please imagine a 9-step ladder where on the
  bottom, the first step, stand the poorest people,
  and on the highest step, the ninth, stand the
  rich. On which step are you today?

Comparison of actual and predicted subjective
welfare
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Recommendations for practice

• Key issue is often not the precise location of
  the poverty line but being sure that it is fixed
  in terms of the living standards indicator.
• When that indicator is "command over basic
  consumption needs", there are two steps to
  forming sensible poverty lines
• decide what constitutes "basic consumption needs"
  in the specific society this is fundamentally a
  normative value judgment and
• for different groups in the poverty profile of
  that society, set nominal poverty lines which are
  just enough to assure that those needs can at
  least be afforded.

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Objective poverty lines Problems

• Defining "basic consumption needs"
• Setting food energy requirements (Variability
  multiple equilibria activity level).
• Setting "basic non-food consumption needs"
  (behavioral approaches).
• Consistency in terms of welfare
• Is the same standard of living being treated the
  same way in different sub-groups of the poverty
  profile? If not, then the profile may be quite
  deceptive.
• Is the definition of welfare consistent with the
  definition of poverty? If some good is purchased
  by poor people why should it not be included in
  the poverty bundle?
• Key question how sensitive are the rankings in a
  poverty profile to these choices?