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Reassessing poverty measurement in Europe using a cash-flow-informed residual-income framework

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  • Želinský, Tomáš
  • Mysíková, Martina

Abstract

We develop a cash-flow-informed residual-income (RI) framework that subtracts non-discretionary expenditures (housing costs, loan payments, transportation) from disposable income (DI) to reassess poverty in Europe. Using EU-SILC 2020 microdata and Eurostat methodology, we estimate and compare RI- and DI-based poverty rates. The RI results show higher poverty prevalence and stronger alignment with subjective hardship. Poverty-status transitions and subgroup analyses indicate mortgage holders, renters, and transport-dependent households are RI-poor but not DI-poor. Results further imply that deducting major fixed costs alters assumed household economies of scale. RI measures offer a nuanced view of economic hardship and can inform targeted policies.

Suggested Citation

  • Želinský, Tomáš & Mysíková, Martina, 2026. "Reassessing poverty measurement in Europe using a cash-flow-informed residual-income framework," Economics Letters, Elsevier, vol. 259(C).
    • Handle: RePEc:eee:ecolet:v:259:y:2026:i:c:s0165176525006238
    DOI: 10.1016/j.econlet.2025.112786
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    References listed on IDEAS

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    1. Michael Stone, 2006. "What is housing affordability? The case for the residual income approach," Housing Policy Debate, Taylor & Francis Journals, vol. 17(1), pages 151-184.
    2. Martina Mysíková & Tomáš Želinský & Michaela Jirková & Jiří Večerník, 2021. "Equivalence Scale and Income Poverty: Two Approaches to Estimate Country-specific Scale for the Czech Republic," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 156(1), pages 21-45, July.
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    Keywords

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    JEL classification:

    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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