On the Measurement of Poverty Dynamics

Abstract

This paper introduces a family of multi-period poverty measures derived from commonly used static poverty measures. Our measures trade-o¤ poverty levels and changes (gains and losses) over time, and are consistent with loss aversion. We characterize the partial ranking over income dynamics induced by these measures and use it in two empirical applications with longitudinal household level data. Comparing two decades of income dynamics in the United States we …nd that the income dynamics of the 1990s -post Welfare reform-dominates the income dynamics of the 1980s -pre Welfare reform. Next, we compare the contemporary income dynamics of three industrialized countries and conclude that United Kingdom dominates Germany and United States, and Germany dominates the United States if poverty stocks are given more importance than poverty ‡ows. The di¤erences between our ranking and those obtained using other welfare criteria such as social mobility suggest that our measures capture critical information about the evolution of poverty.JEL Classi…cation: D03, D63, I32

The Importance of Consecutive Spells of Poverty: A Path‐dependent Index of Longitudinal Poverty

“…Hojman and Kast (2009) base their index of intertemporal poverty on the “loss aversion axiom.” Their index combines a “stock” poverty, which is the average of per‐period poverty measures, and a “flow” poverty accounting for the trend in the poverty experience (i.e. improving or worsening).…”

“…Among the above mentioned indices, a few have an upper bound, in particular Foster (2009), Mendola and Milito (2008), Mendola et al (2009b), and Hojman and Kast (2009.…”

“…See the wide discussion inHoy and Zheng (2011). 2 For a discussion, seeHojman and Kast (2009) andGünther and Maier (2008). Starting from a different perspective, the same kind of reasoning is found inRodgers and Rodgers (1993) and Calvo andDercon (2009).…”

Differentiating Between Dimensionality and Duration in Multidimensional Measures of Poverty: Methodology with an Application to China

“…This is motivated by the need for differentiating chronic poverty from transient poverty: long spells of poverty may lead to social exclusion from which recovery may be very difficult; see, for example, Walker (1995). Examples of extensions to (income-based) poverty measures based on such a view include Foster (2009), Calvo and Dercon (2009), Hojman and Kast (2009), Duclos et al (2010), Hoy and Zheng (2011), Bossert et al (2012), Gradin et al (2012) and Foster and Santos (2013).…”

Poverty, Vulnerability, and Reference‐Dependent Utility

“…Moreover, from an axiomatic perspective, loss aversion nicely captures the broad consensus of policy makers and researchers that vulnerability measures should be specifically concerned about the impact of downside risks on individuals' well‐being. For example, the World Development Report (World Bank, ) states that “vulnerability measures the resilience against a shock—the likelihood that a shock will result in a decline in well‐being.” Calvo and Dercon () define vulnerability as “exposure to downside risks.” Similarly, when moving from a static to a dynamic assessment of poverty, reference‐dependent utility can capture path dependency , which has recently been proposed in various forms by several studies on multi‐period poverty (e.g., Hojman and Kast, ; Hoy and Zheng, ; Bossert et al ., ; Mendola and Busetta, ). Reference‐dependent utility models provide an empirically validated framework of how the history or path of consumption can be incorporated into dynamic poverty assessments.…”