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Poverty reduction: the paradox of the endogenous poverty line

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  • De MESNARD, Louis

    () (LEG - CNRS UMR 5118 - Université de Bourgogne)

Abstract

When evaluating poverty, the relative poverty line may be considered as a percentage of the median income or it may be a percentage of the average income. It is proved that, with a poverty line relative to the median income, reducing poverty may become less costly in proportion to the total income as poverty increases (measured by the Sen, the Sen-Shorrocks- Thon or the Foster-Greer-Thorbecke poverty indexes) by passing from a Lorenz concentration curve to another curve associated with more poverty. This is obviously a paradox, although a largely overlooked one. However, it is shown that the paradox vanishes if the poverty line is relative to the average income. The demonstration is both experimental (algebraic or numeric where necessary) based on families of non-intersecting concentration curves produced by various algebraic functions (power function, exponential function or elliptic function but also produced by the Pareto distribution) and it is analytic. One concludes that the poverty line should be relative to the average income rather than to the median income.

Suggested Citation

  • De MESNARD, Louis, 2007. "Poverty reduction: the paradox of the endogenous poverty line," LEG - Document de travail - Economie 2007-05, LEG, Laboratoire d'Economie et de Gestion, CNRS, Université de Bourgogne.
  • Handle: RePEc:lat:legeco:2007-05
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    1. repec:eee:pubeco:v:152:y:2017:i:c:p:79-92 is not listed on IDEAS
    2. Martin Ravallion & Shaohua Chen, 2011. "Weakly Relative Poverty," The Review of Economics and Statistics, MIT Press, vol. 93(4), pages 1251-1261, November.
    3. DECERF, Benoit, 2014. "Income poverty measures with relative poverty lines," CORE Discussion Papers 2014022, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    4. Martin Ravallion, 2015. "The Luxembourg Income Study," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, pages 527-547.
    5. Ravallion,Martin & Chen,Shaohua, 2017. "Welfare-consistent global poverty measures," Policy Research Working Paper Series 8170, The World Bank.
    6. Decerf, B., 2015. "A new index combining the absolute and relative aspects of income poverty: Theory and application," CORE Discussion Papers 2015050, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

    More about this item

    Keywords

    Poverty; poverty line; poverty indexes; median;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty

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