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Measuring Poverty: A New Approach
ship, given that people can shift expenditures through time to at least a limited extent. However, it is not clear how to evaluate the merits of, say, a 2-month, 4-month, or 6-month period.
A related issue concerns the treatment of resources. Assistance programs that use a monthly accounting period also typically include an asset test (with a ceiling on countable assets generally in the range of $1,000-$3,000). Researchers have argued that accounting for asset values in some way would enable the development of a more realistic short-term poverty measure. However, accurate estimation of assets poses greater difficulties than accurate estimation of income, and there are also issues of how to value assets for purposes of poverty measurement (see Chapter 4).
Several researchers have constructed and assessed the effects of measures of poverty that take account of assets. For example, David and Fitzgerald (1987) analyzed the 1984 SIPP, adding the capitalized value of reported interest income from the prior wave (assuming a fixed 6% rate of interest) to the family's current income to estimate a ''crisis" measure. They found that this measure of poverty was always lower than the official measure derived on the basis of money income alone, and the difference was somewhat greater the shorter the accounting period:4
Crisis Measure (%)
Official Measure (%)
On a monthly basis
On a 4-month basis
On an annual basis
David and Fitzgerald (1987) found that, on average, 21 percent of people who were counted as income-poor on a monthly basis did not experience a crisis when their interest-generating assets were taken into account; the corresponding figure for people who were income-poor on a 4-month basis was 14 percent. In general, the gross money income resource definition overstated short-term transitions: of those entering or exiting poverty from 1 month to 4 months later, 40 percent never experienced a crisis. Also, David and Fitzgerald (1987) found that such assistance programs as AFDC and SSI are targeted to those in crisis and not to income-poor people with financial assets.
SIPP makes possible the regular derivation and publication of short-term poverty measures, including measures that take account of families' asset hold-
Monthly poverty rates are averages over 12 months; 4-month rates are averages over three 4-month periods. David and Fitzgerald (1987) subtracted reported interest income from families' resources to avoid double counting. Note that the "official" annual rate of 11.3 percent they obtained from the 1984 SIPP is several percentage points lower than the official rate from the March CPS. David and Fitzgerald obtained similar results for a measure that also added the capitalized value of stocks and rental property to families' resources. The reason is that 94 percent of those in crisis poverty on the basis of their income and interest-generating assets did not have stocks or rental property.