Absolute Poverty Measurement with Minimum Food Needs: A New Inverse Method for Advanced Economies

Abstract

Spurred by the need for increased adequacy and international comparability, absolute poverty measures are gaining in policy relevance around the world. This paper proposes a simple and feasible method of calculating absolute poverty thresholds on the basis of households’ minimum food needs in advanced economies. It makes three important contributions. First, it demonstrates that conventional statistical methods used in the developing world deliver either unrealistically low or improbably high poverty estimates in rich countries where household spending on food is modest in relative terms. Second, it proposes a new simulation-based inverse method that focuses on the non-food Engel curve and uses predetermined minimum food bundles not as inputs but as targeted reference points in order to calculate adequate poverty thresholds. Finally, an empirical application of the new method using household budget survey data from Italy shows that resulting poverty estimates are comparable to the official figures of the Italian Statistical Office in terms of both the poverty rate and the poverty profiles. Requiring few and easily procurable resources, the proposed algorithm is well suited to produce robust, consistent and internationally comparable absolute poverty estimates in a large number of developed countries and emerging economies.