Studies in Applied Welfare Analysis: Papers from the Third ECINEQ Meeting: Volume 18

Volume 18 of Research on Economic Inequality contains selected papers from the Society for the Study of Economic Inequality's Third Annual Meeting (July, 2009) in Buenos Aires, Argentina. The volume collects eleven papers, five of which focus on inequality and poverty in Latin America. The Latin American papers address basic needs and poverty, multidimensional poverty, educational mobility, poverty dynamics, and the role of cash transfer programs in addressing inequality. The second half of Volume 18 collects other papers by ECINEQ members. The topics covered include taxation and inequality, evaluating poverty orderings, testing for mobility dominance, measuring relative deprivation, estimation of the costs of maintaining a child, and evaluating nutritional inequality.

Latin America has a longstanding tradition in multidimensional poverty measurement through the unsatisfied basic needs (UBN) approach. However, the method has been criticized on several grounds, including the selection of indicators, the implicit weighting scheme and the aggregation methodology, among others. The estimates by the UBN approach have traditionally been complemented (or replaced) with income poverty estimates. Under the premise that poverty is inherently multidimensional, in this chapter we propose three methodological refinements to the UBN approach. Using the proposed methodology we provide a set of comparable poverty estimates for six Latin American countries between 1992 and 2006.

The multidimensional nature of well-being is now widely recognized. However, multidimensional poverty measurement is still an expanding field of research and a consensus about the “best” composite indicator has not yet emerged. In this chapter, we provide an empirical analysis using three existing methodologies: Bourguignon and Chakravarty (2003), Alkire and Foster (2007), and Lemmi (2005); Chiappero Martinetti (2000). We present an empirical study of the convergence and divergence of poverty profiles for children in Uruguay considering the following dimensions: nutritional status, child educational achievement, housing condition, and household income. Our data gather information of 1,185 children attending public schools in Montevideo and the surrounding metropolitan area, and were specially gathered to carry out a multidimensional analysis of poverty.

Our results indicate that the three families of indexes yield very different cardinalizations of poverty. At the same time, the correlation coefficients among the three groups of measures for the generalized headcount ratio also highlight important differences in the children labeled as “more deprived.” For the generalized severity and intensity indexes the correlation coefficients increase significantly suggesting a high level of concordance among the three measures, particularly among the Bourguignon and Chakravarty methodology and the Alkire and Foster one.

This chapter estimates the degree of intergenerational educational mobility in Argentina, focusing on the mobility differences between teenagers and young adults. Based on a new database, the Survey of Employment and Education of Youth (CEDLAS-INDEC) nonbiased mobility estimators for children older than teenagers is obtained. Our robust estimations reveal a lower degree of intergenerational mobility for young adults than for teenagers. Furthermore, young adult immobility is not uniform across parents’ education level. Finally, gender differences also affect mobility.

Poverty and informal employment are often regarded as correlated phenomena. Many empirical studies have shown that informal employment has a causal impact on household poverty, mainly through low wages. Yet other studies focus on the reverse causality from poverty to informality, arising from a range of constraints that poverty poses to jobholders. Only recently have empirical researchers tried to study the simultaneous two-way relationship between poverty and informality. However, existing studies have relied upon cross-sectional data and static econometric models.

This chapter takes the next step and studies the dynamics of poverty and informality using longitudinal data. Our empirical analysis is based on a bivariate dynamic random-effect probit model and recent panel data from Argentina. The method used provides a means of assessing the persistence over time of poverty and informal employment at the individual level, while controlling for both observed and unobserved determinants of the two processes. The results show that both poverty and informal employment are highly persistent processes. Moreover, positive spillover effects are found from past poverty on current informal employment and from past informality to current poverty status, corroborating the view that the two processes are also shaped by interrelated dynamics in segmented labor markets.

This chapter provides a detailed analysis of the recent evolution (1993–2007) of Brazilian income inequality. Particularly, we assess the contribution of different income sources to inequality, using three different decomposition techniques: Shorrocks (1982), Lerman and Yitzhaki (1985), and Gini decomposition. We exploit a recent dataset (PNAD, 2004) that allows the identification of different governmental transfer programs (Bolsa-Família, PETI, and BPC) and their impacts into inequality. While informal labor income and self-employment income reduces inequality in almost every measure, the opposite is true for public sector wages. Private formal labor income is becoming less important in explaining Brazilian inequality over time, but its behavior is still important, as it represents more than 40% of the total income. We find that social transfer programs have a limited, but positive impact on equality. On the other hand, dynamics of pensions attenuate the recent path of decreasing inequality in Brazil.

The chapter investigates inequality reducing taxation for various inequality views. Using the general definition of an inequality concept (Ebert, 2004), corresponding definitions of Lorenz dominance, inequality reduction, and measures of tax progression are provided. The framework allows us to simplify and clarify the different approaches found in the literature, to extend this analysis, and to present brief and transparent proofs.

Purpose – A counting approach based on the number of deprivations suffered by the poor is quite an appropriate framework to measure multidimensional poverty with ordinal or categorical data. A method to identify the poor and a number of poverty indices have been proposed to take this framework into account. The implementation of this methodology involves the choice of a minimum number of deprivations required in order for an individual to be identified as poor. This cutoff and the choice of a poverty measure to aggregate the data are two sources of arbitrariness in poverty comparisons. The aim of this chapter is twofold. We first explore properties that characterize an identification method which allows different weights for different dimensions. Then the chapter examines dominance conditions in order to guarantee unanimous poverty rankings in a counting framework.

Design/methodology/approach – In the unidimensional poverty field, one branch of the literature is devoted to establishing dominance criteria that guarantee unanimous orderings at a variety of poverty thresholds and indices. This chapter takes this literature as a starting point, and investigates circumstances in which these ordering conditions may be applied in a weighted counting framework.

Findings – Necessary and sufficient conditions are obtained that guarantee that two vectors, which represent the weighted sum of the deprivations felt by each person, may be unanimously ranked regardless of the identification cutoff and of the poverty measure.

Originality/value – Since most of the data available for measuring capabilities or dimensions of poverty is either ordinal or categorical, the counting approach provides an alternative framework that suits these types of variables. The implementation of the ordering conditions derived in this chapter is based on simple graphical devices that we call dimension deprivation curves. These curves become a useful way to check the robustness of poverty rankings to changes in the identification cutoff. They also provide a tool for determining nonambiguous poverty rankings in a wide set of multidimensional poverty indices that suit ordinal and categorical data.

This chapter proposes tests for stochastic dominance in mobility based on the empirical likelihood ratio. Two views of mobility are considered, either based on measures of absolute mobility or based on transition matrices. First-order and second-order dominance conditions in mobility are first derived, followed by the derivation of statistical inferences techniques to test a null hypothesis of nondominance against an alternative of mobility dominance. An empirical analysis, based on the US Panel Study of Income Dynamics (PSID), is performed by comparing four income mobility periods ranging from 1970 to 1990.

This chapter attempts to explicitly integrate the idea of reference group when measuring relative deprivation. It assumes that in assessing his situation in society an individual compares himself with individuals whose environment can be considered as being similar to his. By environment we mean the set of people with a similar set of observable characteristics such as human capital, household attributes, and location. We therefore propose to measure relative deprivation by comparing the actual income of an individual with the one he could have expected on the basis of the level of these characteristics. We then aggregate these individual comparisons by computing an index of “distributional change” that compares, on a non anonymous basis, the distributions of the actual and “expected” incomes. At the difference of other approaches to relative deprivation, our measure takes into account not only the difference between the actual and “expected” individual incomes but also that between the actual and “expected” individual ranks. We applied our approach to Moldova, the poorest country in Europe, using a survey that covered a period of six years (from 2000 to 2005). We then observed that our measure of deprivation is well suited to study wage deprivation across genders and is able to proxy subjective deprivation in living standards reported by survey respondents better than conventional measures of relative deprivation.

The chapter estimates the cost of maintaining a child, at different ages, the cost of being single, and the cost of additional adults present in a family, with the aim of making comparable the income levels of different households. The study investigates the issue of econometric identification of equivalence scales within a demand system modified to include demographic characteristics consistently with economic theory. It shows that a robust estimation of equivalence scales must take into formal consideration the problem of econometric identification. The estimate also puts forward all-encompassing demographic specifications to identify costs due to differences in needs, household lifestyles, and economies of scale.

Rising incomes in China have not led to a smaller degree of undernutrition as measured by percentage of population below calorie and protein recommended daily allowances. The weak relationship between income and nutrition is further demonstrated by our income elasticity estimates for calories and protein, which are generally zero. We do find that the percentage of fat in the calorie source is a normal good.