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Five Decades of Consumption and Income Poverty

  • Bruce D. Meyer
  • James X. Sullivan

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 for single parents and 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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14827.

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Date of creation: Mar 2009
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Publication status: published as “Consumption and Income Poverty in the U.S.” (with James X. Sullivan) in The Oxford Handbook of the Economics of Poverty, edited by Philip N. Jefferson, 2012, 49-74.
Handle: RePEc:nbr:nberwo:14827
Note: CH LS PE
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  1. Bruce D. Meyer & Wallace K. C. Mok & James X. Sullivan, 2009. "The Under-Reporting of Transfers in Household Surveys: Its Nature and Consequences," NBER Working Papers 15181, National Bureau of Economic Research, Inc.
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  9. Slesnick, Daniel T, 1992. "Aggregate Consumption and Saving in the Postwar United States," The Review of Economics and Statistics, MIT Press, vol. 74(4), pages 585-97, November.
  10. Bruce D. Meyer & James X. Sullivan, 2007. "Further Results on Measuring the Well-Being of the Poor Using Income and Consumption," Working Papers 0719, Harris School of Public Policy Studies, University of Chicago.
  11. Robert J. Gordon, 2006. "The Boskin Commission Report: A Retrospective One Decade Later," NBER Working Papers 12311, National Bureau of Economic Research, Inc.
  12. Jerry Hausman & Ephraim Leibtag, 2005. "Consumer Benefits from Increased Competition in Shopping Outlets: Measuring the Effect of Wal-Mart," NBER Working Papers 11809, National Bureau of Economic Research, Inc.
  13. Kevin Lang, 2007. "Introduction to Poverty and Discrimination
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  14. Jerry Hausman, 2003. "Sources of Bias and Solutions to Bias in the Consumer Price Index," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 23-44, Winter.
  15. Craig Gundersen & James Ziliak, 2004. "Poverty and macroeconomic performance across space, race, and family structure," Demography, Springer, vol. 41(1), pages 61-86, February.
  16. Martin Browning & Thomas F. Crossley & Guglielmo Weber, 2003. "Asking consumption questions in general purpose surveys," Economic Journal, Royal Economic Society, vol. 113(491), pages F540-F567, November.
  17. Hilary W. Hoynes & Nada Elissa, 2005. "Behavioral Responses to Taxes:Lessons from the EITC and Labor Supply," Working Papers 529, University of California, Davis, Department of Economics.
  18. Hurd, Michael D, 1990. "Research on the Elderly: Economic Status, Retirement, and Consumption and Saving," Journal of Economic Literature, American Economic Association, vol. 28(2), pages 565-637, June.
  19. Slesnick, Daniel T, 1993. "Gaining Ground: Poverty in the Postwar United States," Journal of Political Economy, University of Chicago Press, vol. 101(1), pages 1-38, February.
  20. Bruce D. Meyer & James X. Sullivan, 2006. "Consumption, Income, and Material Well-Being After Welfare Reform," NBER Working Papers 11976, National Bureau of Economic Research, Inc.
  21. Erich Battistin, 2002. "Errors in Survey Reports of Consumption Expenditures," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 C4-2, International Conferences on Panel Data.
  22. Sawhill, Isabel V, 1988. "Poverty in the U.S.: Why Is It So Persistent?," Journal of Economic Literature, American Economic Association, vol. 26(3), pages 1073-119, September.
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  24. Robert J. Gordon & Todd vanGoethem, 2005. "A Century of Housing Shelter Prices: Is There a Downward Bias in the CPI?," NBER Working Papers 11776, National Bureau of Economic Research, Inc.
  25. Ernst R. Berndt, 2006. "The Boskin Commission Report After a Decade: After-life or Requiem?," International Productivity Monitor, Centre for the Study of Living Standards, vol. 12, pages 61-73, Spring.
  26. Jon Bakija, 2006. "Documentation for a Comprehensive Historical U.S. Federal and State Income Tax Calculator Program," Department of Economics Working Papers 2006-02, Department of Economics, Williams College, revised Aug 2009.
  27. Bruce W. Hamilton, 2001. "Using Engel's Law to Estimate CPI Bias," American Economic Review, American Economic Association, vol. 91(3), pages 619-630, June.
  28. Steven J. Haider & Kathleen McGarry, 2005. "Recent Trends in Resource Sharing Among the Poor," NBER Working Papers 11612, National Bureau of Economic Research, Inc.
  29. Bruce D. Meyer & James X. Sullivan, 2008. "Changes in the Consumption, Income, and Well-Being of Single Mother Headed Families," American Economic Review, American Economic Association, vol. 98(5), pages 2221-41, December.
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