TIP Curves

TIP CURVES ARE A GRAPHICAL method of representing multiple aspects of poverty and were developed by Stephen Jenkins and Peter Lambert in 1997. The term TIP stands for the “Three ‘I's of Poverty,” which include incidence, intensity, and inequality.

TIP curves are similar in nature to the more commonly used Lorenz curves. A Lorenz curve is a graphical representation of income inequality and is created by ordering up the entire population from poorest to richest and then graphing the cumulative percentage of the population against the cumulative percentage of the income earned by the population. In a hypothetical country where all persons have identical incomes, the Lorenz curve is a straight 45-degree line. As a country's income becomes progressively more unequal, the Lorenz curve gains curvature. The degree of curvature of the line displays the degree of income inequality that exists in the country.

To create a TIP curve, again the entire population is ordered up from poorest to richest, but then one graphs the cumulative percentage of the population against the cumulative poverty gap of the population, or the cumulative poverty gap per capita. The poverty gap is the difference between the poverty line and the actual income of each individual household. In other words, the poverty gap for a household is the amount of money that would be required to bring that household to the poverty line. Households with income levels above the poverty line are defined to have a poverty gap equal to zero.

The interesting feature of the TIP curve is that the shape of the curve has convenient interpretations. The length of the curve represents the incidence of poverty and is the percentage of the population that falls below the poverty line, otherwise known as the headcount index or poverty rate. The height of the curve represents the intensity of poverty and, depending on whether the y-axis is measured by the cumulative poverty gap or cumulative poverty gap per capita, is the amount of income that would be required to bring all of the poor up to the poverty level (known as the poverty gap), or the amount of income per capita that would be required to achieve the same goal (known as the poverty gap index). The curvature of the TIP curve represents the inequality of poverty and essentially behaves like an inverse Lorenz curve.

A country whose TIP curve has a more pronounced curvature is one where some of those households in poverty suffer from absolute destitution while others are comparatively well-off. The “three ‘I's of poverty” can be compared across countries using TIP curves so long as the cumulative poverty gap per capita model is used. When two TIP curves are graphed together, if the curves do not cross, the country whose TIP curve lies to the left of the other country's curve can unambiguously be said to suffer from more severe poverty. When two TIP curves cross, however, no such definitive statement can be made, as a tradeoff is being made among the intensity, incidence, and inequality of poverty in the two countries.

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