Francisco Azpitarte

MEASURING POVERTY USING BOTH INCOME AND WEALTH: A CROSS‐COUNTRY COMPARISON BETWEEN THE U.S. AND SPAIN

In this paper we study the correspondence between a household’s current income and its vulnerability to income shocks in two developed countries: the U.S. and Spain. Vulnerability is measured by the availability of wealth type resources to smooth consumption in a multidimensional approach to measuring poverty, which allows us to identify three groups of households. First, the twice-poor group which includes income-poor households who also lack of an adequate stock of wealth; second, the group of protected-poor households, which are all those income-poor families that have accumulated a buffer stock of wealth resources they can rely on; lastly, the vulnerable-non-poor group, which includes those households above the income-poverty line that do not hold any stock of wealth. The latter are, out of the group of non-poor, those who are more likely to be pushed into economic deprivation in times of economic hardship. Interestingly, the risk of belonging to one of these groups changes over the life-cycle in both countries while the size of the groups differs significantly between Spain and the U.S., although this result is quite sensible to whether one includes the housing wealth component in the wealth measure or not.

Understanding Changes in the Distribution and Redistribution of Income: A Unifying Decomposition Framework

In recent decades income inequality has increased in many developed countries but the role of tax and transfer reforms is often poorly understood. We propose a new method allowing for the decomposition of historical changes in income distribution and redistribution measures into: (i) the immediate effect of tax-transfer policy reforms in the absence of behavioral responses; (ii) the effect of labor supply responses induced by these reforms; and (iii) a third component allowing us to explore the effect of changes in the distribution of a wide range of determinants, including the effect of employment changes not induced by policy reforms. The application of the decomposition to Australia reveals that the direct effect of tax-transfer policy reforms accounts for half of the observed increase in income inequality between 1999 and 2008, while the increased dispersion of wages and capital incomes also played an important role.

Recent Trends in Income Redistribution in Australia: Can Changes in the Tax‐Benefit System Account for the Decline in Redistribution?

We examine trends in the redistributive impact of the tax-transfer system in Australia between 1994 and 2009 using a framework that allows us to separate the contributions of taxes and benefits to overall income redistribution. Furthermore, we identify the effect of tax-transfer policy reforms on changes in income redistribution over the period by controlling for changes in the distribution of market incomes. We find that after reaching a peak value in the late 1990s, the redistributive impact of taxes and transfers steadily declined. Although reforms to the tax-transfer system contributed to the decline in redistribution, their contribution was limited.

Understanding Changes in Progressivity and Redistributive Effects: The Role of Tax-Transfer Policies and Labour Supply Decisions

In this paper we propose a framework to study changes in the redistributive consequences of income taxes and transfers. In contrast with previous approaches the new method allows decomposition of the change in the redistributive impact into four components: the immediate effect of changes in the tax-transfer system in the absence of labour supply responses; the effect of labour supply changes induced by changes in the tax-transfer system; the effect of all other labour supply changes; and a residual capturing the variation not explained by the previous factors. We illustrate the use of our decomposition method by analysing the changes in the redistributive impact of the tax and transfer system in Australia between 1999 and 2007. We find that labour supply changes, and in particular the increase in employment rates over the period, explain to a large extent the observed reduction in the redistributive effect of the tax-transfer system. A sizable part of these labour supply changes were found to be direct responses to tax-transfer reforms. Interestingly, we find that tax reforms were not responsible for the observed reduction in tax progressivity.

A Dominance Criterion for Measuring Income Inequality from a Centrist View: The Case of Australia

This paper introduces a new Lorenz dominance criterion that allows ranking income distributions according to centrist measures a la Seidl and Pfingsten (1997). In doing so, it defines a-Lorenz curves by adapting the generalized Lorenz curves to this case. In addition, it provides an empirical illustration of these tools using Australian income data for the period 2001–2008. The results suggest that despite the reduction of relative inequality, inequality increased for most centrist value judgments.

Measuring Poverty Using Both Income and Wealth: An Empirical Comparison of Multidimensional Approaches Using Data for the U.S. and Spain

This paper presents a comparative analysis of the approaches to poverty based on income and wealth that have been proposed in the literature. Two types of approaches are considered: those that look at income and wealth separately when defining the poverty frontier, and those in which these two dimensions are integrated into a single index of welfare. We illustrate the implications of these approaches on the structure of poverty using data for two industrialized countries—for example, the United States and Spain. We find that the incidence of poverty in these two countries varies significantly depending on the poverty definition adopted. Despite this variation, our results suggest that the poverty problem is robust to changes in the way poverty is measured. Regarding the identification of the poor, there is a high level of misclassification between the poverty indices: for most of the pairwise comparisons, the proportion of households that are misclassified is above 50 percent. Interestingly, the rate of misclassification in the United States is significantly lower than in Spain. We argue that the higher correlation between income and wealth in the United States contributes to explaining the greater overlap between poverty indices in this country.

Childcare use and its role in Indigenous child development: evidence from the Longitudinal Study of Indigenous Children in Australia

This paper investigates patterns of childcare use and their influence on the cognitive development of Indigenous children. The influence of childcare on the cognitive outcomes of Indigenous children is less well understood than for non-Indigenous children due to a lack of appropriate data. This paper uses data from the Longitudinal Study of Indigenous Children, a unique panel survey that tracks two cohorts of Indigenous children in Australia. This paper focusses on the younger cohort that has been followed from infancy and includes rich information on their childcare use and cognitive outcomes. We find that, compared to Indigenous children who never participated in childcare, Indigenous children who participated in childcare performed better on a range of cognitive outcomes measured across the preschool years. Using regression and propensity score matching techniques we show that this difference is entirely driven by selection into childcare, with children from more advantaged families being more likely to attend formal childcare than children from less advantaged families. However, results from the matching analysis suggest that relatively disadvantaged children might benefit more from attending childcare, as indicated by the positive potential effects found for those who never attended childcare (i.e. the estimated effects had they participated in childcare).

Robust Pro-Poorest Poverty Reduction with Counting Measures: The Anonymous Case

When measuring poverty with counting measures, are there conditions ensuring that poverty reduction not only reduces the average poverty score further but also decreases deprivation inequality among the poor more, thereby emphasizing improvements among the poorest of the poor? In the case of a non-anonymous assessment, i.e. when we can track poverty experiences of the same individuals or households using panel datasets, we derive three conditions whose fulfillment allows us to conclude that multidimensional poverty reduction is more egalitarian in one experience vis-a-vis another one, for a broad family of poverty indices which are sensitive to deprivation inequality among the poor, and from an ex-ante conception of inequality of opportunity. We illustrate these methods with an application to multidimensional poverty in Peru before and after the 2008 world financial crisis.

On the Measurement of Intermediate Inequality: A Dominance Criterion for a Ray-Invariant Notion

Abstract This paper introduces a unit-consistent Lorenz dominance criterion that allows ranking income distributions according to centrist measures a la Seidl and Pfingsten (1997). In doing so, it defines α-Lorenz curves that generalize the absolute Lorenz curve. These curves allow implementing unanimous rankings for a broad set of centrist inequality notions, whereas they become closer and closer to the absolute curve when α approaches equity. In addition, this paper provides an empirical illustration of these tools using Australian income data. The results suggest that despite the reduction of relative inequality for Australian-born people between 1999 and 2003, their inequality increased for most centrist value judgments.