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Measuring Richness and Poverty

  • Peichl, Andreas
  • Schaefer, Thilo
  • Scheicher, Christoph

In this paper, we define a new class of richness measures. In contrast to the often used headcount, these new measures are sensitive to changes in rich person's income and therefore allow for a more sophisticated analysis of richness. We demonstrate the application of these new measures to analyse the development of poverty and richness over time in Germany, to compare Germany to the other EU-15 countries and to investigate the impact of tax reforms on poverty and richness. The latter analysis is based on micro data provided by the simulation model FiFoSiM using German income tax and household survey micro data. We show that it partly depends on the measure whether the development of richness in Germany is increasing or decreasing. The cross country analysis yields several groups of countries according to their values of poverty and richness indices. The new richness measures show that the effects of flat tax reform scenarios depend on the reform parameters. Using these examples, we show the importance of taking into account the dimension of changes and not only the number of people beyond a given richness line (headcount). We propose to use the new measures in addition to the headcount index for a more comprehensive analysis of richness.

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Paper provided by University of Cologne, FiFo Institute for Public Economics in its series FiFo Discussion Papers - Finanzwissenschaftliche Diskussionsbeiträge with number 06-11.

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Date of creation: 2006
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Handle: RePEc:zbw:uoccpe:5153
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  1. Anthony B. Atkinson, 2005. "Comparing the Distribution of Top Incomes Across Countries," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 393-401, 04/05.
  2. Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-66, May.
  3. Marcelo Medeiros, 2006. "Poverty, inequality and redistribution: A methodology to define the rich," Working Papers 18, International Policy Centre for Inclusive Growth.
  4. Peichl, Andreas, 2005. "Die Evaluation von Steuerreformen durch Simulationsmodelle," FiFo Discussion Papers - Finanzwissenschaftliche Diskussionsbeiträge 05-1, University of Cologne, FiFo Institute for Public Economics.
  5. Satya R. Chakravarty & Pietro Muliere, 2004. "Welfare indicators: a review and new perspectives. 2. Measurement of poverty," Metron - International Journal of Statistics, Dipartimento di Statistica, Probabilità e Statistiche Applicate - University of Rome, vol. 0(2), pages 247-281.
  6. Fabien Dell, 2005. "Top Incomes in Germany and Switzerland Over the Twentieth Century," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 412-421, 04/05.
  7. Peichl, Andreas & Fuest, Clemens & Schaefer, Thilo, 2005. "Dokumentation FiFoSiM: Integriertes Steuer-Transfer-Mikrosimulations- und CGE-Modell," FiFo Discussion Papers - Finanzwissenschaftliche Diskussionsbeiträge 05-3, University of Cologne, FiFo Institute for Public Economics.
  8. de Vos, Klaas & Zaidi, M Asghar, 1997. "Equivalence Scale Sensitivity of Poverty Statistics for the Member States of the European Community," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 43(3), pages 319-33, September.
  9. Atkinson, Tony, et al, 2002. "Microsimulation of Social Policy in the European Union: Case Study of a European Minimum Pension," Economica, London School of Economics and Political Science, vol. 69(274), pages 229-43, May.
  10. Chakravarty, Satya R., 1983. "A new index of poverty," Mathematical Social Sciences, Elsevier, vol. 6(3), pages 307-313, December.
  11. Peichl, Andreas & Fuest, Clemens & Schaefer, Thilo, 2006. "Does tax simplification yield more equity and efficiency? An empirical analysis for Germany," FiFo Discussion Papers - Finanzwissenschaftliche Diskussionsbeiträge 06-5, University of Cologne, FiFo Institute for Public Economics.
  12. Thomas Piketty, 2005. "Top Income Shares in the Long Run: An Overview," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 382-392, 04/05.
  13. Gerhard Wagenhals, 2004. "Tax-benefit microsimulation models for Germany: A Survey," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 235/2004, Department of Economics, University of Hohenheim, Germany.
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