Poverty measures and their efficiency in capturing regressive income transfers

Abstract

In times of severe economic depressions like the one we internationally live since 2007, diverse transformations affect the productive structure of nations, and inevitably the mechanisms that determine the distribution of national wealth. In 2010 we are living a new depression that originated in the financial sphere (with “Hedge Funds” and financial derivatives behind the crisis) of European markets, but it will inevitably have repercussions on the distribution of wealth of other countries. Diverse modifications of the social structure arise when these depressions occur. Poverty in the most vulnerable nations invariably increases. Hence, in order to analyze the modifications that arise in the more fragile sectors of the social structure adequate measurement instruments must be used. Poverty measures reported in the international literature don’t measure equally, and their indexes fail to adequately capture the social transformations that arise during economic crisis. This study reports on the differences we encounter when trying to quantify poverty as a result of modifications in the distributive income structure using the different measures reported in the international literature. I conclude that if we want to adequately measure what happens to the poorest of a country in times of economic depressions we must use the Sen Index.