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Five Decades of Consumption and Income Proverty

Author

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  • Bruce Meyer

    () (The University of Chicago)

  • James X. Sullivan

    (University of Notre Dame)

Abstract

This paper examines poverty in the United States from 1960 through 2005. We investigate how poverty rates and poverty gaps have changed over time, explore how these trends differ across family types, contrast these trends for several different income and consumption measures of poverty, and consider explanations for the differences in trends. We document sharp differences, particularly in recent years, between different income poverty measures, and between income and consumption poverty rates and gaps. Moving from the official pre-tax money income measure to a disposable income measure that incorporates taxes and transfers has a substantial effect on poverty rate changes over the past two decades. Furthermore, consumption poverty rates often indicate large declines, even in recent years when income poverty rates have risen. We show that bias in the CPI-U has a sizable effect on changes in poverty. Between the early 1960s and 2005, an income poverty measure that corrects for bias in this price index declines by 14 percentage points more than a comparable measure based on the CPI-U. The patterns are very different across family types, with consumption poverty falling much faster than income poverty since 1980 for the elderly, but more slowly for married couples with children. Income and consumption measures of deep poverty and poverty gaps have generally moved sharply in opposite directions in the last two decades with income deep poverty and poverty gaps rising, but consumption deep poverty and poverty gaps falling. While relative poverty rose in the early 1980s, changes in relative poverty have been fairly small since 1990. We examine the role that demographics, taxes, and transfers play in explaining changes in poverty over the past three decades. We also consider whether measurement error, saving and dissaving, and other explanations can account for income and consumption differences.

Suggested Citation

  • Bruce Meyer & James X. Sullivan, 2010. "Five Decades of Consumption and Income Proverty," Working Papers 2010-003, Becker Friedman Institute for Research In Economics.
  • Handle: RePEc:bfi:wpaper:2010-003
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    References listed on IDEAS

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    Cited by:

    1. William Passero & Thesia I. Garner & Clinton McCully, 2014. "Understanding the Relationship: CE Survey and PCE," NBER Chapters,in: Improving the Measurement of Consumer Expenditures, pages 181-203 National Bureau of Economic Research, Inc.
    2. Erich Battistin & Mario Padula, 2016. "Survey instruments and the reports of consumption expenditures: evidence from the consumer expenditure surveys," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 179(2), pages 559-581, February.
    3. Mark Bils & Mark Aguiar, 2010. "Has Consumption Inequality Mirrored Income Inequality?," 2010 Meeting Papers 1334, Society for Economic Dynamics.
    4. Christopher D. Carroll, 2014. "Representing Consumption and Saving without a Representative Consumer," NBER Chapters,in: Measuring Economic Sustainability and Progress, pages 115-134 National Bureau of Economic Research, Inc.
    5. Jonathan A. Parker & Nicholas S. Souleles & Christopher D. Carroll, 2014. "The Benefits of Panel Data in Consumer Expenditure Surveys," NBER Chapters,in: Improving the Measurement of Consumer Expenditures, pages 75-99 National Bureau of Economic Research, Inc.
    6. Burkhauser, Richard V. & Larrimore, Jeff & Simon, Kosali I., 2012. "A "Second Opinion" on the Economic Health of the American Middle Class," National Tax Journal, National Tax Association, vol. 65(1), pages 7-32, March.
    7. Marta Moratti, 2010. "Consumption Poverty and Pro-Poor Growth in Bolivia," Working Paper Series 1310, Department of Economics, University of Sussex.
    8. Robert Moffitt & John Karl Scholz, 2010. "Trends in the Level and Distribution of Income Support," NBER Chapters,in: Tax Policy and the Economy, Volume 24, pages 111-152 National Bureau of Economic Research, Inc.
    9. Marianne Bertrand & Adair Morse, 2016. "Trickle-Down Consumption," The Review of Economics and Statistics, MIT Press, vol. 98(5), pages 863-879, December.
    10. Bettina Aten & Eric Figueroa & Troy Martin, 2012. "How can the American Community Survey (ACS) be used to improve the imputation of Owner-Occupied Rent Expenditures?," BEA Working Papers 0080, Bureau of Economic Analysis.
    11. Evans, William N. & Moore, Timothy J., 2011. "The short-term mortality consequences of income receipt," Journal of Public Economics, Elsevier, vol. 95(11), pages 1410-1424.
    12. Orazio Attanasio & Erik Hurst & Luigi Pistaferri, 2014. "The Evolution of Income, Consumption, and Leisure Inequality in the United States, 1980–2010," NBER Chapters,in: Improving the Measurement of Consumer Expenditures, pages 100-140 National Bureau of Economic Research, Inc.
    13. Adam Bee & Bruce D. Meyer & James X. Sullivan, 2013. "The Validity of Consumption Data: Are the Consumer Expenditure Interview and Diary Surveys Informative?," NBER Chapters,in: Improving the Measurement of Consumer Expenditures, pages 204-240 National Bureau of Economic Research, Inc.
    14. Orazio Attanasio & Luigi Pistaferri, 2014. "Consumption Inequality over the Last Half Century: Some Evidence Using the New PSID Consumption Measure," American Economic Review, American Economic Association, vol. 104(5), pages 122-126, May.
    15. Newman, Sandra J. & Holupka, C. Scott, 2014. "Housing affordability and investments in children," Journal of Housing Economics, Elsevier, vol. 24(C), pages 89-100.
    16. Jones, Carol Adaire & Milkove, Daniel & Paszkiewicz, Laura, 2010. "Farm Household Well-Being: Comparing Consumption- and Income-Based Measures," Economic Research Report 58299, United States Department of Agriculture, Economic Research Service.
    17. Bruce D. Meyer & Wallace K. C. Mok & James X. Sullivan, 2009. "The Under-Reporting of Transfers in Household Surveys: Its Nature and Consequences," Working Papers 0903, Harris School of Public Policy Studies, University of Chicago.
    18. Wankyo Chung & Beomsoo Kim, 2012. "Money Transfer and Birth Weight: A Causal Link from Alaska," Discussion Paper Series 1202, Institute of Economic Research, Korea University.
    19. Müller, Philip & Schmidt, Tobias, 2015. "Identifying income and wealth-poor households in the euro area," Discussion Papers 35/2015, Deutsche Bundesbank.
    20. Philip Müller, 2016. "Poverty in Europe: Sociodemographics, Portfolios and Consumption of Wealth Poor Households," LWS Working papers 22, LIS Cross-National Data Center in Luxembourg.
    21. Liana Fox & Irwin Garfinkel & Neeraj Kaushal & Jane Waldfogel & Christopher Wimer, 2014. "Waging War on Poverty: Historical Trends in Poverty Using the Supplemental Poverty Measure," NBER Working Papers 19789, National Bureau of Economic Research, Inc.
    22. William Passero & Thesia I. Garner & Clinton McCully, 2013. "Understanding the Relationship: CE Survey and PCE," Working Papers 462, U.S. Bureau of Labor Statistics.
    23. Bruce D. Meyer & James X. Sullivan, 2011. "Consumption and Income Poverty over the Business Cycle," NBER Working Papers 16751, National Bureau of Economic Research, Inc.
    24. Bruce D. Meyer & James X. Sullivan, 2012. "Identifying the Disadvantaged: Official Poverty, Consumption Poverty, and the New Supplemental Poverty Measure," Journal of Economic Perspectives, American Economic Association, vol. 26(3), pages 111-136, Summer.
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    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty

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