Raising the Bar: A Poverty Line for Global Inclusion

Abstract

The first of the United Nations 2015 Sustainable Development Goals is: “End poverty in all its forms everywhere.” An implication of this broad goal is the existence of an array of poverty lines, which raises the question of an appropriate lower-bound and an upper-bound to global poverty lines. The ‘dollar-a-day’ poverty line (updated for inflation to P$2.15 in 2017 PPP) is widely accepted as a global lower-bound poverty line (GLBPL). However, while different countries, organizations, and authors use higher poverty lines, there is no consensus on a global upper bound poverty line (GUBPL). We estimate a GUBPL using two conceptually distinct approaches, both grounded in the tension between the focus axiom for poverty measures and standard economic social welfare measures. We set a candidate GUBPL either at: (i) the consumption consistent with the achievement of adequate material well-being or (ii) the consumption level where marginal utility is “near enough” zero. Using either approach, empirical results across an array of measures of well-being demonstrate that ad hoc poverty lines, including the World Bank’s highest reported poverty line of P$6.85, are far too low to be plausible candidates for a GUBPL. Using the two approaches across four distinct indicators of well-being, all of the empirical results suggest a GUBPL of at least P$21.5, ten times higher than the standard GLPBL of P$2.15. The use of both a lower bound and upper bound global poverty line balances the radically exclusive nature of the ‘dollar-a-day’ standard, which classifies people with very low levels of material well-being and hence very high marginal utility of income as “not poor” with an equally radically inclusive GUBPL which counts only those with globally high material achievement and low(ish) marginal utility of income as “not poor.” 

Growth Lab Working Paper Series

No. 250

Keywords

Poverty Measurement, Global Poverty, Welfare Economics

JEL Classification

I32, D63