Measuring Poverty Using Both Income and Wealth: An Empirical Comparison of Multidimensional Approaches Using Data for the U.S. and Spain

Levy Economics Institute Working Paper No. 620

27 Pages Posted: 21 Sep 2010

See all articles by Francisco Azpitarte

Francisco Azpitarte

Melbourne Institute of Applied Economic and Social Research & Brotherhood of St Laurence

Date Written: September 21, 2010

Abstract

This paper presents a comparative analysis of the approaches to poverty based on income and wealth that have been proposed in the literature. Two types of approaches are considered: those that look at income and wealth separately when defining the poverty frontier, and those in which these two dimensions are integrated into a single index of welfare. We illustrate the implications of these approaches on the structure of poverty using data for two industrialized countries - for example, the United States and Spain. We find that the incidence of poverty in these two countries varies significantly depending on the poverty definition adopted. Despite this variation, our results suggest that the poverty problem is robust to changes in the way poverty is measured. Regarding the identification of the poor, there is a high level of misclassification between the poverty indices: for most of the pairwise comparisons, the proportion of households that are misclassified is above 50 percent. Interestingly, the rate of misclassification in the United States is significantly lower than in Spain. We argue that the higher correlation between income and wealth in the United States contributes to explaining the greater overlap between poverty indices in this country.

Keywords: Wealth, Income, Multidimensional Poverty

JEL Classification: D14, D31

Suggested Citation

Azpitarte, Francisco, Measuring Poverty Using Both Income and Wealth: An Empirical Comparison of Multidimensional Approaches Using Data for the U.S. and Spain (September 21, 2010). Levy Economics Institute Working Paper No. 620, Available at SSRN: https://ssrn.com/abstract=1680411 or http://dx.doi.org/10.2139/ssrn.1680411

Francisco Azpitarte (Contact Author)

Melbourne Institute of Applied Economic and Social Research & Brotherhood of St Laurence ( email )

Level 5, FBE Building, 111 Barry Street
111 Barry Street, University of Melbourne
Melbourne, 3010
+61 3 9035 3414 (Phone)
+61 3 8344 2111 (Fax)

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