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Economy and Poverty

Bratislava, May 2003Jean-Etienne Chapron

Statistical Division UNECE

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Economy and Poverty

Key Economic Indicators

Income and Poverty

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Key Economic Indicators

Purpose: Overview of the economic and

financial context in the country Structure:

Production Inflation, debt, and international

assistance Public revenue and expenditure

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Key Economic Indicators

Production

Gross domestic product (GDP) at constant prices per capita national currency and US$ purchasing

power parity (PPP)

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Key Economic Indicators

Production

International standards for GDP: UN System of National Accounts (SNA) of

1993 European System of Accounts (ESA) of

1995 At this level of aggregation, SNA and ESA

are identical

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Key Economic Indicators

Inflation, debt, and international assistance

Purpose: Summarise the security of the economy

Inflation: % change in consumer prices Budget deficit: % of GDP Balance of payments deficit: % of GDP

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Key Economic Indicators

Inflation, debt, and international assistance (cont.)

Service of external debt (public and private) as % of exports

Net official aid received as % of GDP

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Key Economic Indicators

Public revenue and expenditurePurpose: Summarise government’s

capacity to adjust economic trends (GDP) for social concerns

Public revenue (per capita and % of GDP)

Public expenditure (per capita and % of GDP)

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Key Economic Indicators

Public revenue and expenditure (cont.) Public exp. on total social objectives

Per capita % of GDP

Public exp. on health Per capita % of GDP

Public exp. on education per student Public exp. on social transfers per

beneficiary

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Key Economic Indicators

Public revenue and expenditure (cont.)

Sources: Government Finances statistics (in general compiled by Ministry of Finances, sometimes by National Statistical Office or Central Bank)

International Standard: IMF

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Poverty

A key issue for economic and social policy makers

Several stakeholders Governments and civil society

organisations International organisations and their

country offices: UN (esp. UNDG), UNDP, World Bank, EU

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Measuring Poverty

What are we looking for?

The extent of poverty in our country

How poverty is changing over time

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Measuring Poverty

This is not that easy

A variety of inconsistent concepts, methods, and techniques

Results «on request»: high, moderate, or low poverty, increasing or declining?

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Measuring Poverty The meaning of poverty:A shortage of income whereby to

procure essentials in respect of a population in a given area at a given time

Poverty is related to health, education, social exclusion, etc. in the broader context of human welfare

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Measuring Poverty

Poverty is measured in terms of income

Poverty is analysed as a multidimensional phenomenon (health, education, social exclusion, etc.)

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Measuring Poverty

What is «income»? Basically: Earnings from employment

Wages Earnings in non-wage employment

Social transfers Pensions Unemployment benefits Health, maternity, family, minimum income,

etc. Net of taxes and social contributions In cash and in kind

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Measuring Poverty

From household’s income to individual income

Household is the best unit for the measurement of income, but it is of poor analytical value

Individual income is the best indicator Per capita Per adult equivalent (OECD scale)

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Measuring PovertyFrom household’s income to individual

income

Commonly used standard in Europe for «Adult equivalent»:

The OECD « modified » scale First adult = 1 Additional adult = 0.5 Children = 0.3A couple with two children is equivalent to

2.1 «adults».

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Measuring Poverty

Income or Consumption?In terms of concrete measurement, it

may be difficult to collect reliable data on income

Under-reporting by interviewed people

Difficult estimate of income in kind (owner-occupied dwelling, free food received from government or NGOs)

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Measuring Poverty

Income or Consumption? (cont.) Consumption can be a good proxy to

income It is more easy to capture in households

surveys Distribution of income and consumption

is not the same, because of saving But levels of income and consumption

are nearly identical in the lowest part of income distribution

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Measuring Poverty

Absolute and relative poverty Poverty as a shortage of income

whereby to procure essentials: this is absolute poverty.

Poverty as a level of income that is significantly lower than the average income in the populaiton: this is relative poverty.

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Measuring Poverty

Absolute and relative poverty (cont.) Clearly, absolute and relative poverty do

not correspond to the same purpose Absolute poverty is related to minimum

subsistence. It is most appropriate to monitoring and evaluation of poverty reduction policies

Relative poverty is related to disparity of income. It is most appropriate to understanding level and trends of inequality.

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Measuring PovertyMeasuring absolute poverty lines

1. Physiological requirement for food, commonly 2,100 to 2,400 calories per capita per day for an active adult.

2. Least cost of providing the calories with a reasonably mixed diet.

3. The result is the food poverty line, or extreme poverty line.

4. The extreme poverty line is then upgraded by adding an item for non-food needs.

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Measuring Poverty

Measuring absolute poverty lines (cont.)

The non-food needs can be best estimated using the non-food/food ratio for the group of households that is just above the poverty line.

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Measuring PovertyMeasuring relative poverty line

1. Starting from the distribution of income in the population, identification of the median income (50% of the population is below, 50% above this income).

2. Taking a fixed percentage of the median income as the relative poverty line.

3. Following the EU standard, the relative poverty line is 60% of the median income.

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Measuring Poverty

Recommendations Establish a limited set of meaningful

poverty lines: Two absolute poverty lines,

corresponding to poverty (food & non-food), and extreme poverty (food) based on minimum physiological requirements.

One relative poverty line, that is 60% of the median income.

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Measuring Poverty

Recommendations (cont.)

Identify poors in terms of demographic characteristics (sex, age, etc.); disadvantaged groups (ethnic minorities, refugees, etc.); geographical regions; health, education, and housing conditions, etc. This is required for policy monitoring and evaluation.

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Measuring Poverty

Recommendations (cont.)

Establish and periodically update the distribution of income (or consumption as a proxy), i.e., the percentage of households by class of income (see Table 6 in the Background document).

Measure the median income (50% above, 50% below), the upper quintile (20% above), and the lowest quintile (20% below).

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Measuring Poverty

Statistical sources Household sample surveys covering a

comprehensive and representative sample of households.

Living standard measurement surveys (LSMS), household budget survey (HBS), or income and expenditure surveys are good examples.

If possible, annual surveys. If not, every two/three years. Every five years would be too long in the context of transition .

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Poverty

Relation to MDG 1 «Eradicate extreme poverty and hunger»

Target 1: Halve between 2000 and 2015 the proportion of people in absolute poverty.

The UN list of MDG states: « People whose income is less than one dollar a day».

A footnote specifies: «For monitoring country poverty trends, indicators based on national poverty lines should be used, where available.»