Poverty and income Gap: Dose Income Growth Alleviate Poverty?

Abstract

Abstract In this paper, two new poverty indexes, which we named RP index and RPC index, are proposed to measure poverty at a moment and changes in poverty over a period of time respectively. Compared to existing poverty indexes, RP index and RPCindex are characterized by taking into account income inequality of total population and its changes, which will enable them to more accurately measure poverty, especially relative poverty. The RP index and RPC index have been shown to satisfy seven poverty axioms, which guarantees the reliability of both indexes, as well as their sensitivity to changes in income, especially for the poor. Another important feature of RPCindex is its decomposability, which can be used to measure the impact of income growth on changes in poverty. By decomposing into source and subgroup, RPC index is decomposed as a sum of the effect of income growth and the effect of changes in incidence of poverty. The decomposition measures not only the impact of income growth on changes in poverty of total population, but also the impact of income growth on changes in poverty within subgroups and its contribution to changes in poverty of total population. Finally, using data from the China Household Finance Survey, a case study was conducted on the relative poverty of Chinese urban residents and the impact of income growth on changes in poverty. The conclusion indicates that uneven income growth will widen the income gap and therefore fail to alleviate poverty.