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A New Distribution Sensitive Index for Measuring Welfare, Poverty, and Inequality

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Listed:
  • Kraay,Aart C.
  • Lakner,Christoph
  • Ozler,Berk
  • Decerf,Benoit Marie A
  • Jolliffe,Dean Mitchell
  • Sterck,Olivier Christian Brigitte
  • Yonzan,Nishant

Abstract

Simple welfare indices such as mean income are ubiquitous but not distribution sensitive. In contrast, existing distribution sensitive welfare indices are rarely used, often because they are difficult to explain and/or lack intuitive units. This paper proposes a simple new distribution sensitive welfare index with intuitive units: the average factor by which individual incomes must be multiplied to attain a given reference level of income. This new index is subgroup decomposable with population weights and satisfies the three main definitions of distribution sensitivity in the literature. Variants on this index can be used as distribution sensitive poverty measures and as inequality measures, with the same simple intuitive units. The properties of the new index are illustrated using the global distribution of income across individuals between 1990 and 2019, as well as with selected country comparisons. Finally, the index can be used to define the “prosperity gap” as a proposed new measure of “shared prosperity,” one of the twin goals of the World Bank.

Suggested Citation

  • Kraay,Aart C. & Lakner,Christoph & Ozler,Berk & Decerf,Benoit Marie A & Jolliffe,Dean Mitchell & Sterck,Olivier Christian Brigitte & Yonzan,Nishant, 2023. "A New Distribution Sensitive Index for Measuring Welfare, Poverty, and Inequality," Policy Research Working Paper Series 10470, The World Bank.
    • Handle: RePEc:wbk:wbrwps:10470
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    References listed on IDEAS

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    Cited by:

    1. Decerf,Benoit Marie A, 2024. "Multidimensional Well-Being Measurement Practices : A Review Focused on Improving Global Multidimensional Poverty Indicators," Policy Research Working Paper Series 10800, The World Bank.
    2. Rishabh Choudhary & Franz Ulrich Ruch & Emilia Skrok, 2024. "Taxing for Growth : Revisiting the 15 Percent Threshold," Policy Research Working Paper Series 10943, The World Bank.
    3. Decerf,Benoit Marie A, 2023. "An Axiomatic Study Contrasting the Two Main Poverty Line Rules," Policy Research Working Paper Series 10519, The World Bank.

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