An Axiomatic Study Contrasting the Two Main Poverty Line Rules

The poverty line rule defines how the poverty line’s nominal monetary amount should be adjusted to prices and preferences. Official poverty lines are based on either of two main rules. “Objective” poverty lines capture the cost of a fixed list of achievements. “Welfaristic” poverty lines capture the cost of a fixed level of welfare. Longstanding debates oppose their respective proponents. This paper proposes the first axiomatic study contrasting these two types of poverty lines. The framework considers both heterogeneous prices and heterogeneous preferences. The results clarify the normative principles that differentiate them and shed some light on these debates. Which type of poverty line satisfies stronger versions of the axioms depends on the extent of preferences heterogeneity and thus on the application for which poverty is monitored.