Do we know how much poverty there is?

Abstract

This paper tests the sensitivity of poverty indexes to the choice of adult equivalence scales, assumptions about the existence of economies of scale in consumption, methods for treating missing and zero incomes, and different adjustments to handle income misreporting. The sensitivity analysis is applied to household survey data from 17 Latin American countries, which include 92% of the population in the region. By varying these parameters within reasonable boundaries we found that the proportion of poor could be said to be either 20% or 66%. Furthermore, the ranking of countries with respect to poverty is highly sensitive to the underlying choices for poverty measurement. We also perform sensitivity analysis to the use of different poverty lines and poverty indexes, which are issues that have been explored much more in the literature. Even after considering these elements, the most sensitive choice appears to be the method used to adjust for misreporting. These findings point, first, to the need to be explicit about the underlying assumptions behind poverty statistics, second, to the need to perform sensitivity analysis when estimating levels and trends in poverty, and third, to the importance of establishing a set of conventions that would be accepted as “best practices” in estimating poverty indexes.