Defining chronic poverty: comparing different approaches

Abstract

In this study, we discuss two methods commonly used in the literature to measure chronic poverty, the permanent income approach (where the chronically poor are those whose mean income over time is below the poverty line) and the spells approach (where the chronically poor are those households who are below the poverty line half of the time or more). We check the differences between these two methods considering also several household characteristics. The index we use is that of Foster, Greer and Thorbecke, FGT, with and . When each method identifies the chronically poor (which could be different individuals by each method) and shows the percentage of the chronically poor, while when the methods also take into account the depth of poverty. Our main goal is to show the differences between the two methods, so that policymakers would have different perspectives on the problem of chronic poverty and could make decisions on this basis. The results show that, in the data used, the permanent method and the spells method classify the households into chronically poor and nonchronically poor definitions almost similarly in some cases. Thus, when measuring chronic poverty using the FGT index with , the levels of chronic poverty measured by the two methods are quite the same for the whole population as well as for subgroups of the population. Nevertheless, when using the FGT index with , the permanent method and the spells method give different results, as they take into account the depth of poverty differently.