Income, consumption, and poverty measurement in the Philippines

Briones, Kristine Joy and Lopez, Jessa and Elumbre, Roxanne Jean and Angangco, Therese Marie (2021): Income, consumption, and poverty measurement in the Philippines.

Abstract

The official poverty methodology of the Philippines uses pretax income as a measure of household welfare. A household is deemed poor if its pretax income falls below a minimum income sufficient to buy the household’s basic needs. However, several studies suggest that a more appropriate welfare measure for poverty estimation is one that includes only resources available for a household’s own consumption of goods and services. This means taxes, social security expenditures, and gifts or expenses for other households must be excluded from the welfare aggregate. Additionally, arguments towards using consumption as a better measure of welfare in poverty estimation also persist. In this study, we explore two welfare aggregates, disposable income, and basic consumption, and assess how well these alternative measures identify the disadvantaged households compared to when pretax income is used. Using the 2018 Family Income and Expenditure Survey, our results show that while disposable income is no better than pretax income in identifying deprived households, a consumption-based measure is preferable to an income-based measure in identifying the disadvantaged. Results are robust even when the welfare measures are adjusted to account for economies of scale in the household.

• Item Type: MPRA Paper
• Language: English
• Keywords: consumption-based poverty, income-based poverty, welfare measurement
• Subjects: I - Health, Education, and Welfare > I3 - Welfare, Well-Being, and Poverty; I - Health, Education, and Welfare > I3 - Welfare, Well-Being, and Poverty > I32 - Measurement and Analysis of Poverty

References

Albert, J., M. Abrigo, F. Quimba and J. Vizmanos [2020]. Poverty, the middle class, and income distribution amid COVID-19. PIDS Discussion Paper Series No. 2020-22.

Ang, A. P. (2007, June). Workers’ remittances and economic growth in the Philippines. In DEGIT Conference Papers (No. c012_029). DEGIT, Dynamics, Economic Growth, and International Trade.

Bavier, R. [2008]. Reconciliation of income and consumption data in poverty measurement. Journal of Policy Analysis and Management. 27(1).

Betson, D. M. [1996]. Is everything relative? The role of equivalence scales in poverty measurement. Working Paper. United States Census Bureau.

Brewer M. and C. O’Dea [2012]. Measuring living standards with income and consumption: evidence from the UK. IFS Working Paper W12/12.

Brown, G. D. A., and Gathergood, J. [2019]. Consumption Changes, Not Income Changes, Predict Changes in Subjective Well-Being. Social Psychological and Personality Science, 194855061983521. doi:10.1177/1948550619835215

Deaton, A and S. Zaidi [2002]. Guidelines for Constructing Aggregates for Welfare Analysis. Living Standards Measurement Study Working Paper Number 135. The World Bank: Washington, DC.

Friedman, M. [1957]. A theory of the consumption function. Princeton: Princeton University Press.

Haughton, J. and S. R. Khandker [2009]. Handbook on Poverty and Inequality. The World Bank: Washingotn, DC.

Hurd, M. and S. Rohwedder [2006]. Some answers to the retirement-consumption puzzle. NBER Working Paper 12057.

Johnson, D. S. [2004]. Measuring consumption and consumption poverty: possibilities and issues. Reconsidering the Federal Poverty Measure.

Meyer, B. D. and J. X. Sullivan [2009]. Five Decades of Consumption and Income Poverty. Working Paper 14827. National Bureau of Economic Research.

Modigliani, F., and Brumberg, R. [1954]. Utility analysis and the consumption function: An interpretation of cross-section data. Franco Modigliani, 1(1), 388-436.

National Research Council. [1995]. Measuring poverty: A new approach. National Academies Press.

Philippine Statistics Authority [2020]. Updated Official Poverty Statistics of the Philippines, Full Year 2018. PSA: Quezon City.

Rahman, M. S. [2020]. The advantages and disadvantages of using qualitative and quantitative approaches and methods in language “testing and assessment” research: A literature review.

Serafino, P. and R. Tonkin [2017]. Statistical matching of European Union statistics on income and living conditions (EU-SILC) and the household budget survey. EuroStat Statistical Working Papers.

Short, K. [2011]. The Research Supplemental poverty measure 2010. Current Population Reports, U.S. Department of Commerce, Economics and Statistics Administration, US Census Bureau

United Nations Economic Commission for Europe [2017]. Guide on Poverty Measurement. United Nations: New York and Geneva.