Fair and Welfare-Consistent Global Income Poverty Measurement: Theory and Application

There is growing support for monitoring global poverty using a measure that accounts for both own and relative income. This paper shows how—in the context of heterogeneous preferences over these factors—the well-known conflict between fairness and welfare-consistency can be resolved, establishing the first preference-based foundation for both the established societal global poverty line and recently proposed hierarchical poverty indices. The paper reformulates one hierarchical index as a modified headcount ratio. Unlike all classic poverty indices, this index is necessarily reduced when an individual escapes poverty. The application highlights that the proposed index substantially changes the assessment of global poverty reduction.