TOPIC 5: POVERTY AND INEQUALITY

Which groups are most likely to be placed in the low poverty groups

• Those living in rural areas

• Women

• Ethnic minorities and indigenous populations

What are the properties that we want in a good measure of poverty

• Anonymity principle: The measure should not depend on who has the higher income

• Population independence principle: An inequality measure should not be based on the number of income residents

• Monotonicity principle: If you add income to someone below the poverty line with all other incomes held constant poverty should fall.

• Distributional sensitivity principle: If you transfer income from someone who is poorer to someone who is richer the economy is deemed poorer.

What are the headcount measures of poverty

• Poverty headcount: The number of individuals falling below a pre specified poverty level

• The headcount ratio: The number of people that are poor as a fraction of the population

What are the problems with the headcount and the headcount ratio

• The poverty headcount ratio fails to satisfy the population independence principle

• The headcount ration fails to satisfy the monotonicity principle and distributional sensitivity, but satisfies anonymity and population independence.

What incentives are created by measuring poverty through headcount or fractions

• Governments are pushed to show improvements in poverty measures.

• Focus shifts to helping those just above or near the poverty line not ust the poorest

• The MDG’s reinforce this focus

What is the equation for Total Poverty Gap

H= Total number of poor people

Yp= The poverty line income

Yi= The actual income of poor person

What is the equation for average poverty gap

What is the equation for poverty gap index

What are the strengths of the Total Poverty Gap

• TPG is sensitive to the changes below the poverty line

• TPG satisfies the monotonicity principle

What is the Foster Greer Thorbecke index

it's a family of poverty measures used in development economics, that incorporates other poverty measures

Why can high inequality be harmful for economic development

• Low overall savings rate from those of poorer background (S) is apart of AD

• Rich gain excessive bargaining power influencing policies in their favour

• Inefficient land use

• Corruption issues

• This cycle continues reinforcing these negative factors.

What is the Kuznets curve

• The curve shows the relationship between economic development and income inequality

• At first in early stages of development income is concentrated within a few groups but as the economy develops in factors like education and urbanization and technological progress there is more equal distribution of income.

What properties are in a good measure of inequality

Scale independence: Inequality measures should not depend on the size of the economy

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

The curve shows a country’s distribution of income shares relative to population shares.

What is the Gini coefficient

Summarises the relationship between the Lorenz curve and the line of Equality

What are some of the policies that can be introduced to reduce inequality

• Progressive redistribution of asset ownership

• Progressive taxation

• Transfer payments and public provision of goods and services.

• Programmes aimed at creating Jobs when employment is scarce

Why might workfare programs be preferred over welfare programs in developing countries?

• Hard to screen the poor without a work requirement.

• Poor workers have low opportunity cost of time (little economic loss if they work in the program).

• Non-poor workers have high opportunity cost of time (less likely to participate).

• Example: Food for Work programs.