Does Choice between an Endogenous and a Fixed Poverty Line Affect the Poverty Outcome of Policy Reforms?
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Abstract
Most of studies on the poverty impact of policy reforms assumed the poverty line as a fixed line; thus, the poverty outcome of policy reforms may underestimate (overestimate) and mislead in policy guidance. This research aims at theoretically investigating the difference of poverty outcomes between applying a fixed and an endogenous poverty line. Applying the microeconomic theory of consumer behavior and the properties of the poverty function, this study has theoretically proven that, if the fixed poverty line is applied, the poverty impact of policy reforms which significantly increase (decrease) price will always be underestimated (overestimated). Further, if the policy reforms do not change the price level in the economy, choice either an endogenous poverty line or a fixed poverty line does not affect the poverty outcome. However, this is difficult to guarantee that the policy reforms do not influence the price level, so applying an endogenous poverty line will result the best poverty outcome.
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