Testing for Poverty Dominance: An Application to Canada

34 Pages Posted: 25 Nov 2008

See all articles by Wen-Hao Chen

Wen-Hao Chen

OECD; Statistics Canada

Jean-Yves Duclos

Laval University; IZA Institute of Labor Economics

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Abstract

The paper proposes and applies statistical tests for poverty dominance that check for whether poverty comparisons can be made robustly over ranges of poverty lines and classes of poverty indices. This helps provide both normative and statistical confidence in establishing poverty rankings across distributions. The tests, which can take into account the complex sampling procedures that are typically used by statistical agencies to generate household-level surveys, are implemented using the Canadian Survey of Labour and Income Dynamics (SLID) for 1996, 1999 and 2002. Although the yearly cumulative distribution functions cross at the lower tails of the distributions, the more recent years tend to dominate earlier years for a relatively wide range of poverty lines. Failing to take into account SLID's sampling variability (as is sometimes done) can inflate significantly one's confidence in ranking poverty. Taking into account SLID's complex sampling design (as has not been done before) can also decrease substantially the range of poverty lines over which a poverty ranking can be inferred.

Keywords: stochastic dominance, empirical likelihood, Canada, income distribution

JEL Classification: C12, C15, D31, D63, I30

Suggested Citation

Chen, Wen-Hao and Duclos, Jean-Yves, Testing for Poverty Dominance: An Application to Canada. IZA Discussion Paper No. 3829, Available at SSRN: https://ssrn.com/abstract=1305813 or http://dx.doi.org/10.2139/ssrn.1305813

Wen-Hao Chen (Contact Author)

OECD ( email )

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Statistics Canada ( email )

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Jean-Yves Duclos

Laval University ( email )

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Canada
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418-656-9727 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
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Germany

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