Drawing the Poverty Line: Do Regional Thresholds and Prices Make a Difference?

Abstract The effectiveness of anti‐poverty programs depends on whether they raise the incomes of poor households. This involves an adequate measurement of poverty and appropriate approaches for defining poverty lines. This paper analyzes the extent to which poverty measures are sensitive to alternative ways of adjusting national lines by spatial price differences. First, we analyze how moving from national to regional poverty lines has an impact on the incidence and intensity of poverty. Second, we show how poverty patterns vary with alternative definitions of poverty thresholds. Using data from all Spanish regions, our results show that regional levels of poverty change with each threshold, and the orderings of regions do not remain robust to the choice of poverty lines. We also show that re‐rankings are more relevant for explaining differences in the regional distribution of poverty than gap‐narrowing effects when a region‐specific poverty line is used. A second finding resulting from probability models and decomposition methods is that poverty profiles vary as different lines are used. In general terms, our findings provide general support to the notion that poverty policies that do not address the problem of spatial price differences might yield relevant assignment errors.