EDPSE-C05 Povery, Ineqality, and Development

Measuring Ineqality and Povery

Headcount Index: H/N
- H is the number of persons who are poor
- N is the total number of people in the economy
Total povery gap
Average Poverty Gap: $A PG = \frac{TPG}{N}$
- Normalized Poverty Gap (NPG): $NPG = \frac{A PG}{Y _{P}}$
Average Income Shortfall (AIS): $A I S = \frac{TPG}{H}$
- Normalized Income Shortfall $N I S = \frac{A I S}{Y _{P}}$
The Foster-Greer-Thorbecke (FGT) index:

P_{α} = \frac{1}{N} i = 1 \sum H (\frac{Y _{P} - Y _{i}}{Y _{P}})^{α}

Newly Introduced Multidimentional Poverty Index:
Health: (2/6 points)
- Whether any child has died in the famiily
- Whether any dult of child in the family is malnourished
Education: (2/6 points)
- Whether no member of family passed 5 years of schooling
- Whether any school-aged child is out of school (grade1-8)
Standard of Living (6/18 points)
- Lack of electricity
- Insufficiently safe drinking water
- Inadequate sanitation
- Inadequate flooring
- Unimproved cooking fuel
- Lack of more than one of 5 assets: telephone, radio, TV, bicycle, motorbike
How MPI tells a different story than income poverty
- Knowing income poverty isn’t enough
- … (in slides)
Why extreme inequality matters?
- Separation of identity in country:
  - Can lead to Marxism’s bourgeisie vs proletariate revolution
  - Tension and discrimination