Imputing Rent in Consumption Measures, with an Application to Consumption Poverty in Canada 1997-2009

Measures of household consumption-­which may be used to investigate average consumption growth, mor consumption poverty and inequality-­must account for the rental flow from owned accommodation. We consider two econometric problems relating to the imputation of rental flows for owned accommodation that have been thus far ignored in the literature on consumption poverty and inequality. First, using a Heckman-type correction, we account for quality differences correlated with selection into owner-occupied versus rental tenure. Using this correction increases the estimate of average household consumption by about 4 per cent in comparison with uncorrected estimates. Second, we propose a new way to measure poverty (or inequality) that accounts for the measurement error induced by the rent imputation. In particular, we argue that the researcher should impute a consumption distribution, rather than a single consumption level, for each household. We apply our methods to the measurement of consumption poverty in Canada. We estimate the rate of consumption poverty for all people, and for children and the elderly, over the period 1997-2009, allowing for interprovincial and intertemporal variation in commodity prices. Using a better rent imputation strategy matters a lot: the over-time pattern in poverty rates is quite different with the selection- and measurement-­error corrected approach. We find that poverty declined dramatically over the study period, and that, although substantial progress was been made on overall poverty and child poverty, poverty among the elderly did not decrease very much.