Region-Specific versus Country-specific Poverty Lines in Analysis of Poverty

Abstract:\nThe standard practice in most OECD countries is to measure and evaluate poverty on the basis of a\npoverty line defined as a specific proportion of the median equivalent income within a country.\nHowever, this approach disregards regional differences in prices and needs within a country and\nmay, therefore, provide an incomplete and even an incorrect picture of the extent as well as the\ngeographical and demographical composition of the poor. To account for differences in prices and\nneeds, this paper introduces an alternative method of measuring poverty based on a set of regionspecific\npoverty lines. Applying Norwegian household register data for 2001 we find that the overall\nextent of poverty is only slightly affected by the change in definition of poverty line. However, the\ngeographical as well as the demographical composition of poverty are shown to depend heavily on\nwhether the method of measuring poverty relies on region-specific or country-specific thresholds. As\nexpected, the results demonstrate that the analysis of poverty based on country-specific thresholds\nproduces downward biased poverty rates in urban areas and upward biased poverty rates in rural\nareas. Moreover, when region-specific poverty thresholds form the basis of the poverty analysis, we\nfind that the poverty rates among young singles and non-western immigrants are significantly higher\nthan what is suggested by previous empirical evidence based on a joint country-specific poverty line.\nKeywords: Measurement of poverty, poverty line, geographical and demographical poverty profile