L7 Sept 22 - Poverty Depth Severity Dynamics 1 Not all...

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Poverty Depth Severity Dynamics 1
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Not all poverty is equal Poverty rate = # poor / total population a decrease in income among the poor = no change in poverty But, aren’t they worse off? Depth (poverty gap) how far income is below the poverty line on average Severity (poverty gap squared) how unequal income is among the poor 2
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Foster-Greer-Thorbecke (FGT) poverty indices z = poverty line I (.) is an indicator function, = 1 if true, 0 otherwise α = 0 , Poverty headcount /rate α = 1, Poverty gap / depth α = 2, Poverty severity 3
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Poverty Rate 4
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Poverty Gap / Depth Average distance of the poor below the poverty line Not affected by income transfers among the poor Decreases when there is a transfer from a poor to a non-poor person 5
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Poverty Severity Accounts for distance separating the poor from the poverty line (the poverty gap) AND the inequality among the poor Households further from the poverty line add MORE to the index that those closer Sensitive to all transfers Best for comparison before/after transfers 6
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FGT indices example Poverty line = 25 7 person y I(y<z) 1 10 1 2 20 1 3 30 0 4 40 0 5 50 0 P 0 = 0.40
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