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Five Decades of Consumption and Income Proverty

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  • Bruce Meyer

    ()
    (University of Chicago - Irving B. Harris Graduate School of Public Policy Studies)

  • James X. Sullivan

    ()
    (University of Notre Dame - Department of Economics and Econometrics)

Abstract

This paper examines poverty in the United States from 1960 through 2005. We investigate how poverty rates and poverty gaps have changed over time, explore how these trends differ across family types, contrast these trends for several different income and consumption measures of poverty, and consider explanations for the differences in trends. We document sharp differences, particularly in recent years, between different income poverty measures, and between income and consumption poverty rates and gaps. Moving from the official pre-tax money income measure to a disposable income measure that incorporates taxes and transfers has a substantial effect on poverty rate changes over the past two decades. Furthermore, consumption poverty rates often indicate large declines, even in recent years when income poverty rates have risen. We show that bias in the CPI-U has a sizable effect on changes in poverty. Between the early 1960s and 2005, an income poverty measure that corrects for bias in this price index declines by 14 percentage points more than a comparable measure based on the CPI-U. The patterns are very different across family types, with consumption poverty falling much faster than income poverty since 1980 for the elderly, but more slowly for married couples with children. Income and consumption measures of deep poverty and poverty gaps have generally moved sharply in opposite directions in the last two decades with income deep poverty and poverty gaps rising, but consumption deep poverty and poverty gaps falling. While relative poverty rose in the early 1980s, changes in relative poverty have been fairly small since 1990. We examine the role that demographics, taxes, and transfers play in explaining changes in poverty over the past three decades. We also consider whether measurement error, saving and dissaving, and other explanations can account for income and consumption differences

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File URL: http://bfi.uchicago.edu/RePEc/bfi/wpaper/BFI_2010-003.pdf
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Bibliographic Info

Paper provided by Becker Friedman Institute for Research In Economics in its series Working Papers with number 2010-003.

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Date of creation: Jan 2010
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Handle: RePEc:bfi:wpaper:2010-003

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  1. Bruce D. Meyer & James X. Sullivan, 2007. "Further Results on Measuring the Well-Being of the Poor Using Income and Consumption," NBER Working Papers 13413, National Bureau of Economic Research, Inc.
  2. V. Joseph Hotz, 2003. "The Earned Income Tax Credit," NBER Chapters, in: Means-Tested Transfer Programs in the United States, pages 141-198 National Bureau of Economic Research, Inc.
  3. James M. Poterba, 1991. "Is the Gasoline Tax Regressive?," NBER Chapters, in: Tax Policy and the Economy, Volume 5, pages 145-164 National Bureau of Economic Research, Inc.
  4. Sawhill, Isabel V, 1988. "Poverty in the U.S.: Why Is It So Persistent?," Journal of Economic Literature, American Economic Association, vol. 26(3), pages 1073-119, September.
  5. Ernst R. Berndt, 2006. "The Boskin Commission Report After a Decade: After-life or Requiem?," International Productivity Monitor, Centre for the Study of Living Standards, vol. 12, pages 61-73, Spring.
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  7. Erich Battistin, 2003. "Errors in survey reports of consumption expenditures," IFS Working Papers W03/07, Institute for Fiscal Studies.
  8. Hilary W. Hoynes & Marianne E. Page & Ann Huff Stevens, 2006. "Poverty in America: Trends and Explanations," Journal of Economic Perspectives, American Economic Association, vol. 20(1), pages 47-68, Winter.
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  11. Bruce D. Meyer & James X. Sullivan, 2008. "Changes in the Consumption, Income, and Well-Being of Single Mother Headed Families," American Economic Review, American Economic Association, vol. 98(5), pages 2221-41, December.
  12. Robert K. Triest, 1998. "Has Poverty Gotten Worse?," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 97-114, Winter.
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  20. Slesnick, Daniel T, 1993. "Gaining Ground: Poverty in the Postwar United States," Journal of Political Economy, University of Chicago Press, vol. 101(1), pages 1-38, February.
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  22. Nada Eissa & Hilary Hoynes, 2005. "Behavioral Responses to Taxes: Lessons from the EITC and Labor Supply," NBER Working Papers 11729, National Bureau of Economic Research, Inc.
  23. Mark Aguiar & Erik Hurst, 2006. "Measuring trends in leisure," Proceedings, Federal Reserve Bank of San Francisco.
  24. Jerry Hausman, 2003. "Sources of Bias and Solutions to Bias in the Consumer Price Index," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 23-44, Winter.
  25. Steven J. Haider & Kathleen McGarry, 2005. "Recent Trends in Resource Sharing Among the Poor," NBER Working Papers 11612, National Bureau of Economic Research, Inc.
  26. Hurd, Michael D, 1990. "Research on the Elderly: Economic Status, Retirement, and Consumption and Saving," Journal of Economic Literature, American Economic Association, vol. 28(2), pages 565-637, June.
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