Brookings Papers on Economic Activity

Poverty Has Fallen Much More than Previously Thought

Consumption a Better Measure than Income; We are Winning the War on Poverty, New Research Asserts

Poverty Has Fallen Much More than Previously Thought

SEPTEMBER 13, 2012 -
Poverty has fallen by 12.5 percentage points over the past 40 years, in spite of the fact that official government statics show the opposite with a rise in the number of poor, according to a new paper presented today at the Fall 2012 Conference on the Brookings Papers on Economic Activity (BPEA).

For decades, policymakers have argued about how to make anti-poverty programs more effective, noting that the official poverty rate in 2010 was more than 2 percentage points higher than the rate in 1970 despite a doubling of real GDP per capita and trillions of dollars spent on antipoverty programs. In “Dimensions of Progress: Poverty from the Great Society to the Great Recession” authors Bruce Meyer of the University of Chicago and James Sullivan of the University of Notre Dame show that, unlike previous studies, poverty has indeed shown improvement over time. “We may not have won the war on poverty, but we are certainly winning,” they write. Deep poverty and poverty gaps have shown great improvement, implying that considerable progress has been made at reducing severe deprivation, they write.

Poverty has declined, they posit, thanks to changes in tax policy, particularly for families with children, but that other than Social Security, cash and noncash government transfer programs have had only a small impact on changes in poverty.

They argue that a poverty measure based on consumption will do a better job of capturing well-being than one based on income (i.e. a wealthy retired couple living off their assets may have very low income, but this does not mean they are poor). They also argue that consumption is better reported than income by families with few resources; that households face variation in income; and that consumption may differ from income because households may borrow and save.  

Meyer and Sullivan find that who is consumption poor is very different from who is income poor, with the consumption poor being noticeably worse off. Their research shows that the consumption poor are less educated, less likely to own a home, much more likely to live in married parent families, and much less likely to be a single individual or elderly than the income poor. In addition, married parent families with children have fared less well, while seniors have done better than income data indicate.  As a result, they advocate that policymakers should focus more on families with children in future anti-poverty efforts.

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