Can we save money on surveys by measuring poverty with a few goods instead of full consumption? Theory says only if all Engel curves are linear; data from East Africa confirm this shortcut fails in practice.

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Abstract

Frequent measurement of poverty is challenging because measurement often relies on complex and expensive expenditure surveys that try to measure expenditures on a comprehensive consumption aggregate. This paper investigates the use of consumption subaggregates instead. The use of consumption subaggregates is theoretically justified if and only if all Engel curves are linear for any realization of prices. This is very stringent. However, it may be possible to empirically identify certain goods that happen to have linear Engel curves given prevailing prices, and when the effect of price changes is small, such a subaggregate might work in practice. We construct such linear subaggregates using data from Rwanda, Tanzania, and Uganda. Our findings show that using subaggregates is ill advised in practice as well as in theory.

BibTeX

@Article{	  christiaensen-ligon-sohnesen22,
  author	= {Luc Christiaensen and Ethan Ligon and Thomas Pave
                Sohnesen},
  title		= {Consumption Subaggregates Should Not Be Used to Measure
                Poverty},
  journal	= {World Bank Economic Review},
  year		= 2022,
  volume	= 36,
  number	= 2,
  pages		= {413--432},
  doi		= {10.1093/wber/lhab021}
}