ECO 2117 Lecture Notes - Lecture 9: Transfer Principle
20 Aug 2016
School
Department
Course
Professor
ECO2117
February 25 2016
Poverty and Inequality
-personal distribution of measuring inequality:
-quintiles, deciles (divide persons in income distribution in 5 or 10 equally sized groups and
compare the joint income of groups)
-Lorenz curves (reflects income contribution of each percentile of the population as a
percentage of total income)
-Gini coefficient (summarizes the degree of income inequality in one number)
-desirable properties of inequality measures:
-anonymity principle: measure should not depend on who has the higher income
-scale independence principle: measure should not depend on the size of the economy or
the way we measure income (currency type)
-population independence principle: measure should not be based on the number of
income recipients
-transfer principle: measure should be sensitive to inequality reducing transfers
-quintiles, declines, Lorenz and Gini curves satisfy properties 1, 2, and 3 (and Lorenz and Gini
satisfy principle 4)
-analyze how total national income is divided between the factors of production: wages, rent,
interest and profit
-economic theory: each factor gets paid it’s respective contribution to national production
(aggregate income)
-non market forces are not taken into account
-the monetary approach of measuring absolute poverty takes into consideration only the
financial resources needed to satisfy basic needs:
-headcount index (P0)
-average poverty gap (P1)
-poverty severity (P2)
-the multidimensional approach takes into account indicators of adverse outcomes
-headcount (H)
-adjusted headcount (HA)
-main steps of measuring absolute poverty:
-define poverty concept
-construct welfare indicator
-set a threshold (poverty line)
-compare welfare indicators with the threshold for each individual
-aggregate individual results into a welfare measure
-example: monetary poverty:
-financial resources
-income/expenditure
-absolute poverty line, money value of goods and services you need to satisfy your basic
needs
-households and their members with income/expenditures below the poverty line are poor
-headcount index, average poverty gap and poverty severity index
-headcount index: where H is the number of persons who are poor and N is the tool number
of people in the economy
-interpretation: proportion of people with an income level below the poverty line
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Quintiles, deciles (divide persons in income distribution in 5 or 10 equally sized groups and compare the joint income of groups) Lorenz curves (re ects income contribution of each percentile of the population as a percentage of total income) Gini coef cient (summarizes the degree of income inequality in one number) Anonymity principle: measure should not depend on who has the higher income. Scale independence principle: measure should not depend on the size of the economy or the way we measure income (currency type) Population independence principle: measure should not be based on the number of income recipients. Transfer principle: measure should be sensitive to inequality reducing transfers. Quintiles, declines, lorenz and gini curves satisfy properties 1, 2, and 3 (and lorenz and gini satisfy principle 4) Analyze how total national income is divided between the factors of production: wages, rent, interest and pro t. Economic theory: each factor gets paid it"s respective contribution to national production (aggregate income)
