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GOAL AND TARGET ADDRESSED

Goal 1. Eradicate extreme poverty and hunger Target 1.A: Halve, between 1990 and 2015, the proportion of people whose income is less than one dollar a day

DEFINITION AND METHOD OF COMPUTATION

Definition
The share of poorest quintile in national consumption is defined as the share of a country’s national consumption or income that accrues to the poorest quintile (fifth) of the population.This indicator is expressed as a percentage.

Concepts
Poorest quintile is the bottom 20 percent of the population, ranked by income or consumption levels.

Method of Computation
Consumption, including consumption from own production, or income is calculated from household data for the entire household, adjusted for household size, and then divided by the number of persons living in the household to derive a per capita measure. The population is then ranked by consumption or income, and the bottom fifth of the population’s consumption or income is expressed as a percentage of aggregate household income. The calculations are made in local currency, without adjustment for price changes, exchange rates or spatial differences in the cost of living within countries because the data needed for such calculations are generally unavailable.
The share of poorest quintile in national consumption or income is calculated as follows:

Image

where yi is the per capita consumption of income with Image, and the first n observations represent 20 per cent of the total population.

RATIONALE AND INTERPRETATION

This indicator is a measure of inequality in the distribution of income, reflected in the percentage shares of income or consumption accruing to portions of the population ranked by income or consumption levels. Inequality is a broader concept than poverty because it is defined over the entire population, and not just the population below a certain poverty line.

Because the consumption of the poorest fifth is expressed as a percentage of total household consumption (or income), this indicator is a measure of “relative inequality”. This means that while the absolute consumption of the poorest fifth may increase, its share of total consumption may remain the same (if the total goes up by the same proportion), decline (if the total goes up by a larger proportion) or increase (if the total goes up by a smaller proportion).

Values can range from 0 to 20. Smaller values indicate higher inequality, especially when compared to the share of income accruing to the wealthiest quintile. A value of 20 for each quintile would indicate perfect equality between quintiles.

The indicator does not reveal the distribution of income within the poorest quintile. Therefore, further disaggregation by deciles or percentiles is needed to assess inequality among the poorest quintile.

SOURCES AND DATA COLLECTION

Data on the distribution of income or consumption come from nationally representative household surveys. Where the original data from household surveys are available, they are used to directly calculate income or consumption shares by quintile. Otherwise, shares are estimated from the best available grouped data.

Distribution data are adjusted for household size, providing a more consistent measure of per capita income or consumption. No adjustments are made for spatial differences in the cost of living within countries because the data that are needed for such calculations are generally unavailable.

For more details on sources and data collection, see Indicator 1.1.

DISAGGREGATION

This indicator can be generated at the sub-national level (for example, by urban and rural location). However, because it cannot be decomposed at the sub-national level, estimates at the sub-national level are not widely produced.

COMMENTS AND LIMITATIONS

One of the main limitations of this indicator is that, because household surveys differ in method and type of data collected, distribution data are not strictly comparable across countries. The surveys can differ in the following respects:
  • Some surveys use income as the living standard indicator while others use consumption. The distribution of income is typically more unequal than the distribution of consumption. Also, definitions of income differ more often among surveys. Consumption is usually a much better welfare indicator, particularly in developing countries.
  • Households differ in size (number of members) and in the extent to which income is shared among household members since individuals differ in age and consumption needs. Differences among countries in this respect may bias comparisons of distribution.

Another major limitation of this indicator is the fact that it reflects only the income share of the bottom fifth (quintile) of the population. The proportionate share of national household income of this group may go up while the proportionate share of some other percentile, such as the bottom tenth (decile), or even of a broader group such as the bottom quarter (quartile), may go down, and vice versa.

GENDER EQUALITY ISSUES

See “GENDER EQUALITY ISSUES” for Indicator 1.1.

DATA FOR GLOBAL AND REGIONAL MONITORING

The World Bank Development Research Group produces this indicator using nationally representative household surveys that are conducted by national statistical offices or by private agencies under the supervision of government or international agencies. Data are obtained from government statistical offices and World Bank Group country departments.

For most countries the income distribution indicators are based on the same data used to derive the $1.25 a day poverty estimates. In the case of high-income countries, income distributions are calculated directly from the Luxembourg Income Study database, using an estimation method consistent with that applied for developing countries.

To allow for comparability across countries, measures are interpolated from primary data sources (tabulations or household level data). Parameterized Lorenz curves with flexible functional forms are mainly used to make the estimates.

SUPPLEMENTARY INFORMATION

No information available yet.

EXAMPLES

No information available yet.

REFERENCES

World Bank. Development Data and Statistics. Washington, DC. Internet site http://www.worldbank.org/data.

World Bank. PovcalNet Online Poverty Analysis Tool. Washington, DC. Internet site http://iresearch.worldbank.org/PovcalNet.

World Bank (2002). A Sourcebook for Poverty Reduction Strategies. Jeni Klugman (ed.). Washington, DC. Available from http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTPOVERTY/EXTPRS/0,,contentMDK:22404376~pagePK:210058~piPK:210062~theSitePK:384201~isCURL:Y,00.html.

World Bank (2005). World Development Report 2006: Equity and Development. Washington, DC. Available from http://go.worldbank.org/UWYLBR43C0.

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