Bottom Incomes and the Measurement of Poverty

Working Paper 2021-589


The paper discusses the main issues related to negative and zero incomes that are relevant for the measurement of poverty. It shows the prevalence of non-positive incomes in high- and middle-income countries, provides an analysis of the sources and structure of these incomes, outlines the various approaches proposed by scholars and statistical agencies to treat non-positive incomes, and explains how non-positive incomes and alternative correction methods impact the measurement of standard poverty indexes. It is argued that negative and zero incomes cannot be treated equally in terms of household well-being and that standard methods used by practitioners fail to recognize this fact likely resulting in overestimations of poverty.

Authors: Lidia Ceriani, Vladimir Hlasny, Paolo Verme.

Keywords: Welfare measurement; Well-being; Poverty targeting; High- and middle-income countries; Survey non-response; Negative incomes; Zero incomes; Extreme income corrections
JEL: D31, D63, I32.