Economic Definitions of Poverty

TWO DEFINITIONS OF poverty are the most common. The narrow definition focuses on the lack of material goods. The broader definition, on the other hand, incorporates numerous other factors such as living conditions, health, transportation, and community life.

In the current poverty debate, one distinguishes among three poverty concepts: when the available income is too small to physically survive (absolute poverty), when the available income does not suffice in order to lead to life that society considers acceptable (relative poverty), and when available income does not meet the subjective needs of an individual (subjective poverty).

The simplest and most widely used poverty measure in the literature is the headcount ratio, or poverty rate. It measures the percentage of poor in the population. The poverty rate merely divides the population into two groups, the poor and the nonpoor, neglecting how far below a specified poverty line a poor person's resources are. This problem, associated with the poverty line, is overcome with the so-called poverty gap. The poverty gap measures the mean shortfall of the poor's resources from the specified poverty line.

According to Amartya K. Sen, poverty measures should fulfill three axioms: focus, monotonicity, and transfer.

According to A.K. Sen, poverty measures should fulfill three axioms:

• 1
  Focus Axiom. The poverty measure should be independent from the income of the rich.
• 2
  Monotonicity Axiom. A reduction in income of a person below the poverty line must increase the poverty measure.
• 3
  Transfer Axiom. A pure transformation of income from a person below the poverty line to anyone who is richer must increase the poverty measure.

Based on an axiomatic approach, Sen suggests a very sensible measure of poverty, which takes into account not only the headcount ratio and income ratio but also the income inequality (relative deprivation) among the poor.

Various approaches have been used in the past to construct a monetary poverty line, such that all those with incomes less than that are called poor. One is the calorie expenditure approach popularized by V.M. Dandekar and N. Rath, who use a minimum norm of 2,250 calories per capita per day as a basis of determining the monetary poverty line. According to this approach, one has to first find out the calorie intakes in different per capita expenditure classes, and then the mean of the [Page 284]expenditure class with calorie intake nearest to the norm is taken as the poverty line.