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Testing Poverty Lines

  • Martin Ravallion
  • Michael Lokshin

In theory, a poverty line can be defined as the cost of a common (inter-personally comparable) utility level across a population. But how can one know if this holds in practice? For groups sharing common consumption needs but facing different prices, the theory of revealed preference can be used to derive testable implications of utility consistency knowing only the "poverty bundles" and their prices. Heterogeneity in needs calls for extra information. We argue that subjective welfare data offer a credible means of testing utility consistency across different needs groups. A case study of Russia's official poverty lines shows how revealed preference tests can be used in conjunction with qualitative information on needs heterogeneity. The results lead us to question the utility consistency of Russia's official poverty lines. Copyright � 2006 The Authors; Journal compilation � International Association for Research in Income and Wealth 2006.

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Article provided by International Association for Research in Income and Wealth in its journal Review of Income and Wealth.

Volume (Year): 52 (2006)
Issue (Month): 3 (09)
Pages: 399-421

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Handle: RePEc:bla:revinw:v:52:y:2006:i:3:p:399-421
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