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INTRODUCTION AND OVERVIEW 77 FIGURE 1-5 Effects of the proposed poverty measure on the geographic distribution of poor people. However, the poverty rate for the elderly and their share of the poverty population are somewhat lower under the proposed measure, compared with the current measure, while the poverty rate for working-age adults and their share of poor people are somewhat higher. By region of the country, the poverty rates for residents of the Northeast and West are higher, and they make up larger percentages of poor people under the proposed measure, compared with the current measure. In contrast, the poverty rates for residents of the South and Midwest are lower, and they make up smaller percentages of poor people under the proposed measure; see Figure 1-5. These shifts occur because of adjustments to the thresholds for geographic differences in the cost of housing.23 Effects of Selected Components We next considered the effects of specific components of the proposed measure on the overall poverty rate of 14.5 percent; see Figure 1-6. Adjusting the thresholds for geographic differences in the cost of housing, while having significant distributional effects, has little effect on the poverty rate for the total population. However, the use of a scale economy factor of 0.75 for determining 23 For the areas and states included in each region, see Table 1-5, above.
INTRODUCTION AND OVERVIEW 78 FIGURE 1-6 Effects of selected components of the proposed measure on the poverty rate. NOTE: The official poverty rate in 1992 was 14.5 percent; see text for a discussion of the interaction effect. equivalent thresholds for other family types decreases the rate somewhat (by 0.7 of a percentage point). The addition to income of nonmedical in-kind benefits (e.g., food stamps) has a sizable effect, decreasing the rate by 1.7 percentage points. The subtraction of out-of-pocket medical care expenditures increases the rate by 2.1 percentage points. The subtraction of taxes, work expenses, and child care expenses increases the rate by 0.5, 0.8, and 0.3 of a percentage point, respectively.24 In addition, there is an interaction effect that decreases the rate by 0.2 of a percentage point: this effect occurs because a combination of changes may move a family above (or below) the poverty line when a single change does not.25 24 From tabulations with SIPP, we estimate that the subtraction of child support payments would also increase the poverty rate by a small fraction of a percentage point. 25 The interaction effect would be positive if our analysis did not use a reference family threshold of $13,175 in order to maintain the official 1992 poverty rate of 14.5 percent; this threshold value reduces the overall poverty rate by 1.2 percentage points.