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Household expenditure components and the poverty and inequality relationship in Malawi

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  • Mussa, Richard

Abstract

The paper looks at how inequality in household expenditure components affects total inequality and poverty in Malawi. Total household expenditure is disaggregated into four mutually exclusive and exhaustive expenditure items namely; expenditure on food, expenditure on health, expenditure on education, and expenditure on non food and non human capital items. Using data from the second integrated household survey (IHS2), we find that the elasticities of poverty with respect to within-component and between-component inequality are positive, suggesting that an increase within-component and between-component inequality increases overall poverty in Malawi. The results also show that the elasticities of poverty, as measured by the poverty gap and poverty indices, with respect to inequalities in expenditure on food and health are positive and are about the same in magnitude. The results vindicate the exemptions and zero rating of some food, health, and education related goods and services under the Value Added Tax (VAT) system. More importantly, they also suggest that expanding the coverage of zero rating and exemption would have a poverty reducing effect. These findings hold at the national level, as well as when rural and urban areas are treated separately. Additionally, the results are insensitive to choice of poverty line.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 31225.

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Date of creation: 01 Jun 2011
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Handle: RePEc:pra:mprapa:31225

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Keywords: Inequality; poverty; Malawi;

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  1. Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, Econometric Society, vol. 52(3), pages 761-66, May.
  2. Augustin Kwasi Fosu, 2009. "Inequality and the Impact of Growth on Poverty: Comparative Evidence for Sub-Saharan Africa," Brooks World Poverty Institute Working Paper Series, BWPI, The University of Manchester 9809, BWPI, The University of Manchester.
  3. Donaldson, David & Weymark, John A., 1980. "A single-parameter generalization of the Gini indices of inequality," Journal of Economic Theory, Elsevier, Elsevier, vol. 22(1), pages 67-86, February.
  4. Abdelkrim Araar & Jean-Yves Duclos, 2010. "Poverty and Inequality: A Micro Framework," Journal of African Economies, Centre for the Study of African Economies (CSAE), Centre for the Study of African Economies (CSAE), vol. 19(3), pages 357-398, June.
  5. DONALDSON, David & WEYMARK, John A., . "Ethically flexible Gini indices for income distributions in the continuum," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -520, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Yitzhaki, Shlomo, 1983. "On an Extension of the Gini Inequality Index," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(3), pages 617-28, October.
  7. Mukherjee, Sanjukta & Benson, Todd, 2003. "The Determinants of Poverty in Malawi, 1998," World Development, Elsevier, Elsevier, vol. 31(2), pages 339-358, February.
  8. Hentschel, J. & Lanjouw, P., 1996. "Constructing an Indicator of Consumption for the Analysis of Poverty. Principles and Illustrations with Reference to Ecuador," Papers, World Bank - Living Standards Measurement 127, World Bank - Living Standards Measurement.
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