A New Distribution Sensitive Index for Measuring Welfare, Poverty, and Inequality
This paper proposes a simple new distribution sensitive welfare index with intuitive units
Abstract
Simple welfare indices such as mean income are ubiquitous but not distribution sensitive. In contrast, existing distribution sensitive welfare indices are rarely used, often because they are difficult to explain and/or lack intuitive units. This paper proposes a simple new distribution sensitive welfare index with intuitive units: the average factor by which individual incomes must be multiplied to attain a given reference level of income. This new index is subgroup decomposable with population weights and satisfies the three main definitions of distribution sensitivity in the literature. Variants on this index can be used as distribution sensitive poverty measures and as inequality measures, with the same simple intuitive units. The properties of the new index are illustrated using the global distribution of income across individuals between 1990 and 2019, as well as with selected country comparisons. Finally, the index can be used to define the “prosperity gap” as a proposed new measure of “shared prosperity,” one of the twin goals of the World Bank.
This work is part of the Data and Evidence to Tackle Extreme Poverty (DEEP) programme.
Citation
Kraay, Aart C., Christoph Lakner, Berk Ozler, Benoit Marie A. Decerf, Dean Jolliffe, Olivier Sterck, and Nishant Yonzan. June 2023. “A New Distribution Sensitive Index for Measuring Welfare, Poverty, and Inequality.” Policy Research Working Paper Series, Policy Research Working Paper Series, no. 10470. Washington, D.C.: The World Bank.
Links
A New Distribution Sensitive Index for Measuring Welfare, Poverty, and Inequality