Working Paper: NBER ID: w14827
Authors: Bruce D. Meyer; James X. Sullivan
Abstract: This paper examines poverty in the United States from 1960 through 2005. We investigate how poverty rates and poverty gaps have changed over time, explore how these trends differ across family types, contrast these trends for several different income and consumption measures of poverty, and consider explanations for the differences in trends. We document sharp differences, particularly in recent years, between different income poverty measures, and between income and consumption poverty rates and gaps. Moving from the official pre-tax money income measure to a disposable income measure that incorporates taxes and transfers has a substantial effect on poverty rate changes over the past two decades. Furthermore, consumption poverty rates often indicate large declines, even in recent years when income poverty rates have risen. We show that bias in the CPI-U has a sizable effect on changes in poverty. Between the early 1960s and 2005, an income poverty measure that corrects for bias in this price index declines by 14 percentage points more than a comparable measure based on the CPI-U. The patterns are very different across family types, with consumption poverty falling much faster than income poverty for single parents and the elderly, but more slowly for married couples with children. Income and consumption measures of deep poverty and poverty gaps have generally moved sharply in opposite directions in the last two decades with income deep poverty and poverty gaps rising, but consumption deep poverty and poverty gaps falling. While relative poverty rose in the early 1980s, changes in relative poverty have been fairly small since 1990. We examine the role that demographics, taxes, and transfers play in explaining changes in poverty over the past three decades. We also consider whether measurement error, saving and dissaving, and other explanations can account for income and consumption differences.
Keywords: Poverty; Income; Consumption; Poverty Measurement
JEL Codes: D12; I32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| pretax money income (H24) | disposable income (D10) |
| disposable income (D10) | observed changes in poverty rates (I32) |
| CPI-U bias (E31) | poverty measurements (I32) |
| corrected income poverty measure (I32) | decline in poverty measure (I32) |
| demographic changes (J11) | post-1980 changes in poverty (I32) |
| education (I29) | post-1980 changes in poverty (I32) |
| measurement errors (C20) | discrepancies between income and consumption measures of poverty (I32) |
| dynamics of saving and dissaving (E21) | discrepancies between income and consumption measures of poverty (I32) |