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Measuring Richness and Poverty

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  • Peichl, Andreas
  • Schaefer, Thilo
  • Scheicher, Christoph

Abstract

In this paper, we define a new class of richness measures. In contrast to the often used headcount, these new measures are sensitive to changes in rich person's income and therefore allow for a more sophisticated analysis of richness. We demonstrate the application of these new measures to analyse the development of poverty and richness over time in Germany, to compare Germany to the other EU-15 countries and to investigate the impact of tax reforms on poverty and richness. The latter analysis is based on micro data provided by the simulation model FiFoSiM using German income tax and household survey micro data. We show that it partly depends on the measure whether the development of richness in Germany is increasing or decreasing. The cross country analysis yields several groups of countries according to their values of poverty and richness indices. The new richness measures show that the effects of flat tax reform scenarios depend on the reform parameters. Using these examples, we show the importance of taking into account the dimension of changes and not only the number of people beyond a given richness line (headcount). We propose to use the new measures in addition to the headcount index for a more comprehensive analysis of richness.

Suggested Citation

  • Peichl, Andreas & Schaefer, Thilo & Scheicher, Christoph, 2006. "Measuring Richness and Poverty," FiFo Discussion Papers - Finanzwissenschaftliche Diskussionsbeiträge 06-11, University of Cologne, FiFo Institute for Public Economics.
    • Handle: RePEc:zbw:uoccpe:5153
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    11. Gerhard Wagenhals, 2004. "Tax-benefit microsimulation models for Germany: A Survey," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 235/2004, Department of Economics, University of Hohenheim, Germany.
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    13. Peichl, Andreas & Fuest, Clemens & Schaefer, Thilo, 2006. "Does tax simplification yield more equity and efficiency? An empirical analysis for Germany," FiFo Discussion Papers - Finanzwissenschaftliche Diskussionsbeiträge 06-5, University of Cologne, FiFo Institute for Public Economics.
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    16. Peichl, Andreas & Fuest, Clemens & Schaefer, Thilo, 2005. "Dokumentation FiFoSiM: Integriertes Steuer-Transfer-Mikrosimulations- und CGE-Modell," FiFo Discussion Papers - Finanzwissenschaftliche Diskussionsbeiträge 05-3, University of Cologne, FiFo Institute for Public Economics.
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    Cited by:

    1. Peichl, Andreas & Paulus, Alari, 2008. "Effects of flat tax reforms in Western Europe on equity and efficiency," FiFo Discussion Papers - Finanzwissenschaftliche Diskussionsbeiträge 08-4, University of Cologne, FiFo Institute for Public Economics.
    2. Larysa Krasnikova & Olena Osinkina & Tamara Podvysotskaya & Yuriy Podvysotskiy, 2011. "Does health Matter for Inequality in Transition Countries: The Case of Ukraine," wiiw Balkan Observatory Working Papers 90, The Vienna Institute for International Economic Studies, wiiw.
    3. Andreas Peichl & Nico Pestel & Hilmar Schneider, 2012. "Does Size Matter? The Impact Of Changes In Household Structure On Income Distribution In Germany," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 58(1), pages 118-141, March.
    4. Iris Burmester & Bettina Scherg, 2013. "Polarisierung von Arbeitseinkommen im internationalen Vergleich – Empirische Befunde," FFB-Discussionpaper 96, Research Institute on Professions (Forschungsinstitut Freie Berufe (FFB)), LEUPHANA University Lüneburg.
    5. Joachim Merz & Bettina Scherg, 2013. "Polarization of time and income – A multidimensional approach with well-being gap and minimum 2DGAP: German evidence," Working Papers 297, ECINEQ, Society for the Study of Economic Inequality.
    6. Fernandes, Cristina & Fernandes, Cristina & Crespo, Nuno & Simoes, Nadia, 2016. "Poverty, richness, and inequality: Evidence for Portugal using a housing comfort index," Journal of Economic and Social Measurement, IOS Press, issue 4, pages 371-394.
    7. Paulus, Alari & Peichl, Andreas, 2009. "Effects of flat tax reforms in Western Europe," Journal of Policy Modeling, Elsevier, vol. 31(5), pages 620-636, September.
    8. Andreas Peichl & Thilo Schaefer, 2009. "FiFoSiM - an integrated tax benefit microsimulation and CGE model for Germany," International Journal of Microsimulation, International Microsimulation Association, vol. 2(1), pages 1-15.
    9. Eisenhauer, Joseph G., 2011. "The rich, the poor, and the middle class: Thresholds and intensity indices," Research in Economics, Elsevier, vol. 65(4), pages 294-304, December.
    10. Michal Brzezinski, 2010. "Income Affluence in Poland," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 99(2), pages 285-299, November.
    11. James E. Foster & Joel Greer & Erik Thorbecke, 2010. "The Foster-Greer-Thorbecke (FGT) Poverty Measures: Twenty-Five Years Later," Working Papers 2010-14, The George Washington University, Institute for International Economic Policy.
    12. Fritzsche, Bernd & Haisken-DeNew, John & Kambeck, Rainer & Siemers, Lars-H. R. & Bergs, Christian & Fuest, Clemens & Peichl, Andreas & Schaefer, Thilo & Thöne, Michael, 2007. "Der Zusammenhang zwischen Steuerlast- und Einkommensverteilung: Forschungsprojekt für das Bundesministerium für Arbeit und Soziales. Endbericht - Dezember 2007," RWI Projektberichte, RWI - Leibniz-Institut für Wirtschaftsforschung, number 70874.
    13. Löffler, Max & Peichl, Andreas & Wittneben, Christian & Woodage, Carina, 2015. "Möglichkeiten zur Verbesserung der statistischen Datengrundlage zur Beschreibung höchster Einkommen und Vermögen: Abschlussbericht," ZEW Expertises, ZEW - Leibniz Centre for European Economic Research, volume 58, number 123309.

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    More about this item

    Keywords

    richness; affluence; poverty; tax reform; flat tax;
    All these keywords.

    JEL classification:

    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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