Absolute poverty and the cost of living: an experimental analysis for italian households

Our paper contains an investigation on poverty based on the absolute approach. Actually, absolute poverty has not been totally eliminated, also in developed countries and particularly in Italy. Moreover, this method has poverty levels not depending on income distribution: on the contrary, specific situations of real need are identified. In doing so, different price levels are taken into account, emphasising the possible effects of different costs of living in various geographical areas; for Italy, this issue seems crucial, owing to dramatic economic gaps between Northern and Southern areas. Yet, there are few data available on this, so that only a pioneering study may be carried out. Therefore, we estimate absolute poverty thresholds both for regions and macro areas. General results show a partial narrowing in the geographical gap in favour of the South, with respect to traditional approaches. The analysis is performed using several indicators (i.e. head-count, poverty gap and Sen index). Moreover, income inequalities between regions could turn out to be less obvious by considering different cost of living indices than it is the case if the same level of prices is used. The analysis is based on static micro simulation models that make use of both consumption and income data from ISTAT and Bank of Italy surveys. Thus, several data sources are used: in fact, it is known that income, even though it seems more appropriate in evaluating resources to purchase goods and services, can be sensitive to unexpected and temporary shocks, whereas consumption represents a proxy of the so-called “permanent income”. Finally, some light is also shed on the measurement of the efforts of public policies aimed at poverty alleviation. To this end, it is possible to examine the impact of public taxes and transfers on wellbeing, with particular attention to the effects of a “minimum income” scheme allowing for the different price levels.