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Measuring Poverty: A New Approach
will include in the poverty count people who are income-rich but consumption-poor, that is, people who choose to spend at levels below the poverty threshold when they actually have incomes above that level. Some of these people may contract their spending because they foresee a drop in their income in the future, while others may simply opt for a low standard of living. In contrast, an income resource definition will exclude people from the poverty count who have an adequate income during the measurement period, whether they spend it or not.
At the same time, a consumption resource definition will exclude from the poverty count people who are income-poor (e.g., because they lost a job) but who sustain their consumption at a level above the poverty threshold by such means as borrowing from relatives or charging to the limit on their credit cards. In contrast, an income definition will count such people as poor.7 This statement applies both to the current gross money income definition and to the proposed disposable money and near-money income definition.8
What one thinks of the contrasting ways in which consumption and income resource definitions treat people who are income-rich but consumption-poor and people who are in the reverse situation depends on one's view of the meaning and purpose of a poverty measure. One view is that the poverty measure should reflect the actual level of material well-being or consumption in the society (in terms of the number of people above the threshold), regardless of how that well-being is attained. Another view is that the poverty measure should reflect people's ability to obtain a level of material well-being above the threshold through the use of their own income and related resources. Some with this view would go farther to say that the members of a society have a right to be able to consume above the poverty level without having to resort to such means as begging, unsecured borrowing, stealing, or losing their homes. (For a discussion of the two perspectives, one emphasizing people's actual consumption levels and the other their ability to consume at a level above poverty from their own income, see Atkinson, 1989.)
In a somewhat different vein, a focus on current income (e.g., income available to families over a period such as a year) accords with the view that there is policy interest in measures of relatively short-term economic distress
As currently implemented, an income definition will also count as poor self-employed people who have business losses in accounting terms but nonetheless have adequate cash flows from their businesses for their own needs. However, it is not necessary to estimate self-employment income in business accounting terms, and, in fact, SIPP obtains reports of cash drawn out of businesses.
A crisis definition that adds asset values to income will similarly count some of the income-poor as not poor. It may even more closely resemble a consumption definition in this respect if it also includes credit card and overdraft limits.