Accounting for regional poverty differences in Croatia: Exploring the role of disparities in average income and inequality

Rubil, Ivica (2013): Accounting for regional poverty differences in Croatia: Exploring the role of disparities in average income and inequality.

Abstract

The prevalence of poverty in a given population is determined by both the level of average income and the shape of income distribution. Accordingly, the difference in poverty between two populations can be attributed to disparities in their average incomes and in the levels of income inequality. In this paper, we decompose the differences in relative poverty between each of the twenty-one Croatian counties and Croatia as a whole into the contributions of the mean income and income inequality, using the Household Budget Survey data for 2010. The decomposition framework that we utilize here is one usually applied for decompositions of intertemporal poverty changes, and is based on the concept of Shapley value from cooperative game theory. Poverty is measured by three conventional measures – the headcount ratio, the poverty gap, and the squared poverty gap – and robustness of the results to switching from one measure to another is discussed. The results of decompositions show that in most cases both the mean income and inequality differences contribute to poverty variation across the counties, relative to poverty in Croatia as a whole. When poverty is measured by the headcount ratio, the income contribution dominates the inequality contribution, while when we switch to the other two measures, which give more weight to poorer among the poor, the inequality contribution starts to dominate.

• Item Type: MPRA Paper
• Language: English
• Keywords: regional poverty; decomposition; income contribution; inequality contribution; Shapley value; Croatia
• Subjects: D - Microeconomics > D6 - Welfare Economics > D63 - Equity, Justice, Inequality, and Other Normative Criteria and Measurement; I - Health, Education, and Welfare > I3 - Welfare, Well-Being, and Poverty > I32 - Measurement and Analysis of Poverty

References

Atkinson, A., and E. Marlier, 2010. Income and Living Conditions in Europe. Luxembourg: Eurostat.

Baye, F. M., 2006. Growth, Redistribution and Poverty Changes in Cameroon: A Shapley Decomposition Analysis. Journal of African Economies, vol. 15, no. 4, pp. 543-570.

Bresson, F., 2008a. The Estimation of the Growth and Redistribution Components of Changes in Poverty: A Reassessment. Economics Bulletin, vol. 9, no. 14, pp. 1-7.

Bresson, F., 2008b. Erratum to "The Estimation of the Growth and Redistribution Components of Changes in Poverty: A Reassessment". Economics Bulletin, vol. 9, no. 17, pp. 1-2.

Bresson, F., and K. Labar, 2007. "Leftist", "Rightist" and Intermediate Decompositions of Poverty Variations with an Application to China from 1990 to 2003. Working paper, CERDI – Universite d'Auvergne.

CBS (Central Bureau of Statistics), 2012. Results of Household Budget Survey 2010. Zagreb: Central Bureau of Statistics (Državni Zavod za Statistiku).

Datt, G., and M. Ravallion, 1992. Growth and Redistribution Components of Changes in Poverty Measures: a Decomposition with Applications to Brazil and India in the 1980s. Journal of Development Economics, vol. 38, pp. 275-296.

Deutsch, J., and J. Silber, 2011. On Various Ways of Measuring Pro-poor Growth. Economics, The Open-Access, Open-Assessment Journal, discussion paper no. 2011-13.

Dhondge, S., 2005. Decomposing Spatial Difference in Poverty in India. In: R. Kanbur, A. Venables, and G. Wan (eds.), 2005, Spatial Disparities in Human Development: Perspectives from Asia, Tokyo: United Nations Poverty Press.

Foster, J., J. Greer, and E. Thorbecke, 1984. A Class of Decomposable Poverty Measures. Econometrica, vol. 52, no. 3, pp. 761-765.

Hagenaars, A. J. M., K. De Vos, and A. Zaidi, 1994. Poverty Statistics in the Late 1980s: Research Based on Micro-data. Luxembourg: Office for Official Publications of the European Union.

Hart, S., 2008. Shapley Value. The New Palgrave Dictionary of Economics, Second Edition, Eds. S. N. Durlauf and L. E. Blume. Palgrave Macmillan.

Jain, L. R., and S. D. Tendulkar, 1990. Role of Growth and Distribution in the Observed Change of Headcount Ratio-measure of Poverty: a Decomposition Exercise for India. Technical report no. 9004, Delhi: Indian Statistical Institute.

Kakwani, N., 2000. On Measuring Growth and Inequality Components of Poverty with Application to Thailand. Journal of Quantitative Economics, vol. 16, no. 1, pp. 67-79.

Kakwani, N., and K. Subbarao, 1990. Rural Poverty and Its Alleviation in India. Economic and Political Weekly, no. 25, pp. A2-A16.

Kolenikov, S., and Shorrocks, A., 2000. Poverty Trends in Russia During the Transition. Unpublished manuscript, http://www.cepr.org/meets/wkcn/7/745/papers/shorrocks.pdf.

Kolenikov, S., and Shorrocks, A., 2005. A Decomposition Analysis of Regional Poverty in Russia. Review of Development Economics, vol. 9, no. 1, pp. 25-46.

Milanović, B., 1997. A Simple Way to Calculate the Gini coefficient, and Some Implications. Economics Letters, vol. 56, pp. 45-49.

Müller, A., 2008. Clarifying Poverty Decomposition. Proceedings of the German Development Economics Conference, Zürich 2008, no. 30, http://hdl.handle.net/10419/39900.

Ravallion, M., 1994. Poverty Comparisons. Chur: Harwood Academic Publishers.

Rawls, J., 1971 [1999]. A Theory of Justice. Revised edition. Cambridge, MA: Harvard University Press.

Shapley, L., 1953. A Value for N-person Games. In: H. Kuhn and A. Tucker (eds.), 2005, Contributions to the Theory of Games, vol. 2, Princeton: Princeton University Press.

Shorrocks, A., 2011. Decomposition Procedures for Distributional Analysis: a Unified Framework Based on the Shapley Value. Journal of Economic Inequality, online, http://www.springerlink.com/content/a65m427547227w25/fulltext.pdf.

Verme, P., 2006. Pro-poor Growth During Exceptional Growth: Evidence from a Transition Economy. The European Journal of Comparative Economics, vol. 3, no. 1, pp. 3-14.

Zhang, Y., and G. Wan, 2006. The Impact of Growth and Inequality on Rural Poverty in China. Journal of Comparative Economics, vol. 34, pp. 694-712.