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The Application Of An Endogenous Poverty Line And Its Relationship With The Poverty Impact Of Economic Shocks: An Empirical Investigation

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  • TEGUH DARTANTO

    (Institute for Economic and Social Research (LPEM), Faculty of Economics, University of Indonesia, Jl. Salemba Raya No.4, Jakarta, 10430, Indonesia)

Abstract

Most of the studies on the poverty impact of economic shocks as well as policy reforms assumed the poverty line as a fixed line; thus, the poverty outcome of shocks may underestimate (overestimate) and mislead in policy guidance. This research aims at empirically investigating the difference of poverty outcome between applying a fixed and an endogenous poverty line. Applying computable general equilibrium microsimulation (CGE-MS), this study has empirically proven that, if a fixed poverty line is applied, the poverty impact of economic shocks which significantly increase (decrease) price will always be underestimated (overestimated). This study empirically found that there is a 0.316 percentage point difference in the poverty outcome between applying the endogenous poverty line and the fixed poverty line when analyzing the impact on poverty in Indonesia of a doubling in the imported soybean price. Supposing the fixed poverty line, the poverty rate will increase by 0.167 percentage points, while supposing the endogenous poverty line, the poverty rate will increase by 0.483 percentage points. Therefore, applying either an endogenous or a fixed poverty line will have a different policy implication. This study strongly suggested that the endogenous poverty line should be applied when analyzing the poverty impact of shocks due to the precision in outcomes.

Suggested Citation

  • Teguh Dartanto, 2013. "The Application Of An Endogenous Poverty Line And Its Relationship With The Poverty Impact Of Economic Shocks: An Empirical Investigation," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 58(01), pages 1-25.
    • Handle: RePEc:wsi:serxxx:v:58:y:2013:i:01:n:s0217590813500057
    DOI: 10.1142/S0217590813500057
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    References listed on IDEAS

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    1. Luc Savard, 2003. "Poverty and Income Distribution in a CGE-Household Micro-Simulation Model: Top-Down/Bottom Up Approach," Cahiers de recherche 0343, CIRPEE.
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    3. B. Decaluwé & L. Savard & E. Thorbecke, 2005. "General Equilibrium Approach for Poverty Analysis: With an Application to Cameroon," African Development Review, African Development Bank, vol. 17(2), pages 213-243.
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    5. Sen, Amartya, 1973. "On Economic Inequality," OUP Catalogue, Oxford University Press, number 9780198281931.
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    Cited by:

    1. Dartanto, Teguh, 2013. "Reducing fuel subsidies and the implication on fiscal balance and poverty in Indonesia: A simulation analysis," Energy Policy, Elsevier, vol. 58(C), pages 117-134.

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    Keywords

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    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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