WELFARE, POVERTY & DISTRIBUTIONAL ANALYSIS IN ARMENIA Concepts and Examples March 16, 2015

Transcription

1 WELFARE, POVERTY & DISTRIBUTIONAL ANALYSIS IN ARMENIA Concepts and Examples March 16, 2015 Nistha Sinha Moritz Meyer Poverty and Equity Global Practice

2 Outline A) What do we mean by welfare? --How to measure welfare? (Microdata) ---Using welfare for policy analysis distributional analysis B) What is a Poverty Assessment and what does poverty look like in Armenia? 1 Poverty assessment, welfare and distributional analysis

3 Welfare Well-being is the command over commodities in general, so I am better off if I have a greater command over resources. Or, Does this family face deprivations? Can the family obtain enough food? Or shelter? Or health care? Or education? Nutritional poverty; illiteracy? Amartya Sen s conceptualization, that well-being comes from a capability to function in society. Or, 2 Poverty assessment, welfare and distributional analysis

4 3 Poverty assessment, welfare and distributional analysis

5 How can we measure welfare? Life satisfaction. Reported satisfaction likely shaped by circumstances/experience Source: Deaton Poverty assessment, welfare and distributional analysis

6 How can we measure welfare? Consumption spending of households in monetary terms (Drams) (Our usual approach) Consumption represents the achievement of a particular welfare level, while income reflects opportunity to achieve a certain level. Shows not only what a family is able to consume based on its current income, but also whether that family can access credit markets or use their own savings at times when current incomes are low or even negative (due perhaps to seasonal variation or a harvest failure). Consumption information is more reliable than income in countries where people work in agriculture or engage in multiple self employment activities (selling fruits, working as a brick layer, selling milk) 5 Poverty assessment, welfare and distributional analysis

7 Distribution of welfare (consumption per person), an example PAKISTAN - PIHS 2001/02 (Kernel densities) PCE PAE - no EOS PAE - low EOS PAE - high EOS Density Expenditure (RPs/month) 6 Poverty assessment, welfare and distributional analysis

8 (1) Structure of Consumption Expenditures for Families, 2004 and 2014, Armenia (if price of food increases, who will bear larger burden?) Source: NSSRA 2015, Decile of average monthly per person spending 7 Poverty assessment, welfare and distributional analysis

9 (2) Who benefits most from low energy prices? Romania Energy Affordability Study Romania HBS 2012, Distribution of implicit subsidies (difference between cost of supply and price paid by households) Q1 Q2 Q3 Q4 Q Total Energy Electricity Only Gas Only Central Heating Only 8 Poverty assessment, welfare and distributional analysis

10 (3) Taxes and Transfers in Georgia (fiscal incidence analysis) Cumulative proportion of market income/ tax Cumulative proportion of market income/ transfer 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Cumulative proportion of the population 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Cumulative proportion of the population All taxes Direct Taxes 45 Degree Line Indirect Taxes Market Income 45 degrees Market Income All Transfers In-kind Transfers Direct Transfers Indirect Subsidies Social spending plays important redistributive role Fiscal policies in recent years important not only in driving growth but also in protecting the less well off. Taxes increase inequality. 9

11 Poverty Assessment: Think systematically about (1) who is poor (poverty profile), (2) how the position of poor people can be improved (policies), and (3) what could be impact of policy changes (distributional analysis) 1. Measure Welfare for Monitoring Poverty & Poverty Profile Over time Across regions By demographic groups Household Income Consumption & Expenditure Survey (welfare of households) 2. Targeting Public Resources to Reduce Poverty Benefit programs for the poor Social spendings 3. Assessing Distributiona l Impact of Policy Reforms Increase in food prices Increase in energy prices 10 Poverty assessment, welfare and distributional analysis

12 Poverty is scarcity struggling to manage with less than they need Metric and concept Consumption poverty Absolute poverty Welfare aggregate Durables and own produced goods Price adjustments: regional prices Scaling: per adult equivalent Poverty line (revised in 2009) Cost of basic needs Three poverty lines Share of Population which is Absolutely Poor, Armenia poverty rate poverty gap Source: World Bank (2015). Armenia poverty assessment: how the crisis changed the pace of poverty reduction and shared prosperity. Washington, D.C. : World Bank Group. 11 Poverty assessment, welfare and distributional analysis

13 Poverty is systematically linked to observable characteristics household (1) being female headed, (2) having less education, (3) showing worse labor market outcomes are more likely to be poor Probability of being poor (2010) Probability of being poor (2013) Female (base:male) (0.019)*** (0.019)*** Age of HH head - base: age 16 to to (0.029)*** (0.033) 50 to (0.027) (0.030) 65 to (0.032)** (0.035) 75 plus (0.035) (0.037) Education of HH head - base: primary education Gen secondary (0.037) (0.046) Spec secondary (0.040)*** (0.048) tertiary (0.041)*** (0.049)*** Household size (0.005)*** (0.006)*** Young age dependency rate (0.049) (0.054) Employment rate (0.028)*** (0.027)*** Location of residence base: capital city Yerevan Other urban areas out Yerevan (0.019)*** (0.021)*** Rural areas (0.022) (0.023)** Constant (0.049)*** (0.058) 12 Pseudo R 2 Poverty assessment, welfare and 0.12 distributional analysis 0.11 N 7,852 5,165 Source: World Bank (2015). Armenia poverty assessment : how the crisis changed the pace of poverty reduction and shared prosperity. Washington, D.C. : World Bank Group. Note: Marginal effects from a Probit model estimation using ILCS. Employment rate defined as the share of workers over household members above 15 years. Young age dependency rate defined as share of children (below 15 years) over household size. Robust standard errors in parenthesis.

14 Policies to reduce poverty asset framework: (1) endowment of individuals, (2) use of assets, (3) prices and (4) transfers determine capacity to generate income Source: "Shared Prosperity: Paving the Way in Europe and Central Asia", World Bank Flagship Report, Poverty assessment, welfare and distributional analysis

15 Sources of income differ systematically between poor and non poor households: the role of (1) wage income, (2) pensions, (3) public and (4) private transfers. 100% 6% 6% 8% 8% 90% 9% 6% 10% 5% wage income 80% 4% 10% 3% 9% pensions 70% 22% 20% 60% 26% 27% family benefit 50% unemployment benefit 40% remittances 30% 56% 57% 49% 49% 20% agriculture 10% else 0% non poor poor non poor poor Source: World Bank (2015). Armenia poverty assessment: how the crisis changed the pace of poverty reduction and shared prosperity. Washington, D.C. : World Bank Group. Note: Shares of income sources for the poor and non-poor. Source: World Bank staff estimates using ILCS data. 14 Poverty assessment, welfare and distributional analysis

16 Returns from labor markets are an important source of income and two things matter substantially: (1) sector of employment, and (2) productivity of sector link to macro developments All Poor Nonpoor Agriculture Industry Services Source: World Bank (2015). Armenia poverty assessment: how the crisis changed the pace of poverty reduction and shared prosperity. Washington, D.C. : World Bank Group. Note: Working-age population (aged 15 75). 15 Poverty assessment, welfare and distributional analysis

17 References Welfare: Sen, Amartya The Possibility of Social Choice. American Economic Review 89 (3): Sen, Amartya Commodities and Capabilities. Amsterdam: North-Holland. Deaton, Angus, 2008, Income, Health, and Well-Being around the World: Evidence from the Gallup World Poll. Journal of Economic Perspectives, Volume 22, Number 2, Spring 2008, Pages Poverty measurement and analysis: Haughton, Jonathan and Shahidur R. Khandker Handbook on poverty and inequality, IBRD/World Bank. Deaton, A. and S. Zaidi (2002), Guidelines for constructing consumption Aggregates for welfare analysis, LSMS Working Paper no. 135, World Bank, Washington DC. Ravallion M., and B. Bidani (1994), How robust is a poverty profile?, World Bank Economic Review 8, Using microdata for studying economic development: Deaton, Angus The analysis of household surveys : a microeconometric approach to development policy. Washington, D.C. : The World Bank. Distributional analysis: Coudouel, Aline; Paternostro, Stefano Analyzing the Distributional Impact of Reforms : A Practitioner s Guide to Pension, Health, Labor Markets, Public Sector Downsizing, Taxation, Decentralization, and Macroeconomic Modeling, Volume 2. Washington, DC: World Bank. Behavioral economics and poverty: Mullainathan, Sendhill and Eldar Shafir Scarcity: Why Having Too Little Means So Much Poverty assessment, welfare and distributional analysis