A Unified Approach to Measuring Poverty and Inequality
5 percent increase in the poverty line. Thus, when the poverty line is GEL 75.4, a 5 percent increase moves the poverty line to GEL 79.2. The Watts index increases by 1.5 points from 13.9 [1,A] to 15.4 [2,A], or by 11 percent from its actual level of 13.9. Similarly, if the poverty line changes by –10 percent from GEL 75.4, then the poverty Watts index falls by 2.8 from 13.9 [1,A] to 11.1 [6,A], or by 20.4 percent from the actual level of 13.9. This index is more sensitive to change in the poverty line when the actual poverty line is lower at GEL 45.2. In fact, the SST index and the CHUC index are also more sensitive to change in poverty line when the actual poverty line is GEL 45.2 rather than GEL 75.4. Lessons for Policy Makers The table helps us understand how robust a particular poverty estimate is with respect to the poverty line. Selection of any poverty line is debatable, because it is set with normative judgment. On the one hand, if a poverty measure changes drastically from a change in the poverty line, then a cautious policy conclusion should be drawn from the analysis based on a particular poverty line. On the other hand, if a poverty measure does not vary much because of a change in the poverty line, then a more robust conclusion can be drawn.
Decomposition of the Gini Coefficient Table A.5 analyzes the composition of inequality across different population subgroups using the Gini coefficient. Unlike the decomposable inequality measures containing a within-group term and a between-group term, the Gini coefficient decomposition usually has three terms: a within-group inequality term, a between-group inequality term, and an overlap term. The within-group inequality term is a weighted average of all subgroup inequalities. Note that the overlap term vanishes if the income rankings of the subgroups do not overlap. However, the residual term is nonzero when there are overlapping incomes. Recall that the Gini coefficient lies between 0 and 1 (chapter 2 contains a detailed description of the Gini coefficient). When every household in a region has the same per capita expenditure, then the Gini coefficient is 0.
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