INCOME DISTRIBUTION
& POVERTY
Elif Yeğenoğlu
B. Onurcan Güner
How Do We Measure Income Distribution?
■ Gini Coefficient
■ Palma Ratio
■ Decile
■ Vast Majority
■ Coefficient of variation (CV)
■ Entropy measures
Why Do We Measure Income Distribution?
■ To keep the inequality and the poor on the agenda
■ To target interventions, domestically and worldwide
■ To monitor and evaluate projects and policy interventions geared towards the poor
■ To observe which segment is better off and which segment is worse off, more than an
overall analysis.
■ An extension of welfare criteria (Atkinson 1970, Sen 1973)
Lorenz Curve
■ 45° line is the equality line.
■ The more the curve gets away from this
line, the more the income of the bottom
quantiles decrease, so inequality
increases.
Gini Coefficient
■
A popular measure of inequality which ranges from 0 (perfect equality) to 1 (perfect inequality),
■
Properties:
•
•
•
Mean independence: If all incomes were doubled, the measure would not change.
Symmetry: If any two people swap incomes, there should be no change in the measure of inequality.
Pigou-Dalton Transfer sensitivity: Under this criterion, the transfer of income from rich to poor reduces
measured inequality.
■
Not decomposible: Decomposability of a measure implies that inequality may be broken down by
population groups or income sources or in other dimensions. The Gini index is not easily
decomposable, that is, the total Gini of society is not equal to the sum of the Gini coefficients of its
subgroups.
■
That is not capable of differentiating different kinds of inequalities, there may be same Gini coefficient
values for differing patterns of income distribution
Gini Coefficient
Gini Ratio of Turkey
0.410
0.405
0.400
0.395
0.390
0.385
0.380
0.375
0.370
0.365
Gini
2006
0.403
2007
0.387
2008
0.386
2009
0.394
2010
0.380
2011
0.383
2012
0.382
2013
0.382
2014
0.379
Lorenz Curve For Turkey
The Lorenz curves of equalized household disposable incomes, 2012-2013
Gini Comparisons between Selected Countries
60.0
55.0
50.0
45.0
40.0
35.0
30.0
25.0
20.0
Netherlands
2004
31.7
26.4
29.9
30.7
2005
32.3
27.1
28.7
29.9
2006
27.3
26.5
29.6
30.8
2007
28.1
26.9
30.6
30.4
2008
27.1
27.1
30.5
29.9
2009
26.4
26.6
31.5
28.4
2010
25.9
26.8
30.3
28.7
2011
25.5
27.2
30.8
28.2
2012
25.9
27.3
30.5
28.0
Poland
35.4
35.9
33.7
33.5
33.7
33.6
33.2
32.8
32.4
Turkey
41.3
41.7
39.7
38.4
38.3
39.0
38.8
40.0
40.2
Russian Federation
40.9
41.4
41.5
42.3
41.4
39.7
40.9
41.0
41.6
Argentina
50.2
49.3
48.3
47.4
46.3
45.3
44.5
43.6
42.5
Ecuador
54.1
54.1
53.2
54.3
50.6
49.3
49.3
46.2
46.6
Brazil
56.9
56.6
55.9
55.2
54.4
53.9
53.5
53.1
52.7
Norway
Sweden
Austria
Rank
Turkey’s Gini Coefficient Ranking
Gini Rankings among OECD Countries
before taxes and transfers
0.600
0.500
0.400
0.300
0.200
0.100
0.000
Country
Late 2000s
1South Korea
0,344
2Iceland
0,382
3Switzerland
0,409
4Norway
0,410
5Denmark
0,416
6Slovak Republic
0,416
7Slovenia
0,423
8Chile
0,426
9Netherlands
0,426
10Sweden
0,426
11Greece
0,436
12Canada
0,441
13Czech Republic
0,444
14New Zealand
0,455
15United Kingdom
0,456
16Estonia
0,458
17Spain
0,461
18Japan
0,462
19Finland
0,465
20Hungary
0,466
21Australia
0,468
22Belgium
0,469
23Poland
0,470
24Turkey
0,470
25Austria
0,472
26Luxembourg
0,482
27France
0,483
28United States
0,486
29Mexico
0,494
30Israel
0,498
31Germany
0,504
32Portugal
0,521
33Italy
0,534
Decile
Ratio of top 10% to bottom 10% (again insensitive to middle)
Decile Ratio in Turkey
100 000
16.0
90 000
14.0
80 000
12.0
70 000
60 000
10.0
50 000
8.0
40 000
6.0
30 000
4.0
20 000
2.0
10 000
Bottom 10%
2006
3 220
2007
4 646
2008
4 810
2009
4 971
2010
5 553
2011
6 044
2012
6 543
2013
7 444
2014
7 939
Top 10%
46 271
56 658
57 279
64 844
65 208
72 525
78 569
87 409
92 434
14.4
12.2
11.9
13.0
11.7
12.0
12.0
11.7
11.6
Decile
0.0
Palma Ratio
■ Ratio of top 10% to bottom
40% (insensitive to middle
income changes)
■ Palma mainly considers the
changes in the gap between
top and bottom of income
scale since middle is relatively
stable. The critics for Gini is
that Gini puts equal weight on
all changes of income
distribution but it is about the
lowest earners left behind in
society and the highest
people.
Palma Ratio in Turkey
100 000
1.95
90 000
1.90
80 000
1.85
70 000
1.80
60 000
1.75
50 000
1.70
40 000
1.65
30 000
20 000
1.60
10 000
1.55
Top 10%
2006
46 271
2007
56 658
2008
57 279
2009
64 844
2010
65 208
2011
72 525
2012
78 569
2013
87 409
2014
92 434
Bottom 40% Avg
24 506
32 592
33 346
35 967
38 817
42 459
46 338
51 579
55 897
1.89
1.74
1.72
1.80
1.68
1.71
1.70
1.69
1.65
Palma Ratio
1.50
Income Growth (2006-2014)
Growth of Income for each income quantile of the population
Quantile
Cumulative
CAGR
Top 10%
100%
9,03%
9th 10%
112%
9,83%
8th 10%
111%
9,79%
7th 10%
115%
10,03%
6th 10%
116%
10,13%
5th 10%
120%
10,35%
4th 10%
121%
10,41%
3rd 10%
124%
10,60%
2nd 10%
134%
11,23%
Bottom 10%
147%
11,94%
Vast Majority Income
■ VMI: Average income of bottom 80%
■ VMIR: Ratio of Bottom 80% to GDP per
capita
■ VMIR can be also derived from Lorenz
curve as the slope of line C
Turkey’s GDP per Capita, VMI and VMIR
■ Although the gap between GDP per capita and VMI increased, the ratio of VMI to GDP
per Capita (VMIR) also increased. Since VMI grew faster than GDP per capita, inequality
decreased.
16 000
0.68
14 000
0.67
12 000
0.66
10 000
8 000
0.65
6 000
0.64
4 000
0.63
2 000
2006
2007
2008
2009
2010
2011
2012
2013
2014
GDP per Capita
6 395
8 050
8 372
9 396
9 735
10 774
11 859
13 250
14 553
VMI
4 122
5 347
5 575
6 154
6 527
7 175
7 919
8 841
9 840
VMIR
0.64
0.66
0.67
0.65
0.67
0.67
0.67
0.67
0.68
0.62
Turkey’s GDP per Capita, VMI and VMIR
■ Although the gap between GDP per capita and VMI increased, the ratio of VMI to GDP
per Capita (VMIR) also increased. Since VMI grew faster than GDP per capita, inequality
decreased.
GDP per Capita, VMI and VMIR (Indexed to 100)
0.68
240
0.67
220
200
0.66
180
160
0.65
140
0.64
120
0.63
100
80
GDP per Capita
VMI
VMIR
2006
2007
2008
2009
2010
2011
2012
2013
2014
100.00
100.00
0.64
125.89
129.71
0.66
130.92
135.25
0.67
146.94
149.30
0.65
152.24
158.33
0.67
168.48
174.05
0.67
185.45
192.10
0.67
207.20
214.49
0.67
227.58
238.71
0.68
0.62
VMIR in 2000 or closest (World Bank)
VMIR
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
0.59
Relation between Gini and VMIR
(Ragab and Shaikh, 2008)
■ While (1-G) captures the whole shape of the Lorenz curve, the VMIR only samples it at
a single point.
■ The empirical ratio of VMIR to (1-G) is extraordinarily stable around an average value of
1.1 across countries, and even across time. This phenomena is called as "1.1 Rule”
Alternative Measures
■ Entropy Measures
 They give a sensitivity parameter (α) that varies in the weight given to inequalities in
differing parts of the income spectrum.
• Theil’s Index
• Generalised entropy (GE) measures
• Allow to decompose inequality into the parts within areas (for example, urban and
rural) and the parts that is due to differences between areas (for example, the ruralurban income gap)
■ Coefficient of variation (CV): ratio of the standard deviation of the income distribution to its
mean.
Regional Differences in Production and Income
Per Capita Gross Value Added (2014, TL)
25,000 23,247
20,000
15,000
10,000
5,000
0
5,894
Types of Poverty
■ Absolute Poverty
■ Relative Poverty
■ Situational Poverty (Transitory)
■ Generational or Chronic Poverty
Sources of Poverty
■ Income inequality
■ Conflicts and unrests
■ Location and adverse ecology
■ Natural disasters
■ Ill health and disability
■ Inheritance of poverty
■ Education, training and skills
■ Gender discrimination
Effects
■ Hunger, Health and Deaths
– Malnutrition, starvation, vulnerability and exposure to infectious
diseases, higher death rates
■ Social and Political
– Drugs, prostitution, petty crimes
■ Economic
– Inability to undertake economic activities, lower access to education,
migration, labor force deprivation in rural areas, emergence of slums
Solutions against Poverty
■ Education policies
■ Health, food and water
■ Provision of skills and training
■ Income redistribution
•
Progressive taxing, etc.
The Vicious Cycle of Poverty
Low earning
capacity
Poverty
Low intake of
food &
nutrition
Impaired
productivity
Slow skill
development,
small body size
Undernutrition,
diseases and infections
Stunted
development of
children and
faltering growth
Human Development Index
Global Multidimensional Poverty Index 2015
Alkire, Jindra, Robles Aguilar, Seth and Vaz - June 2015
Oxford Poverty & Human Development Initiative
Dimension Indicator
Deprived if...
No household member aged 10 or older has completed
five years of schooling.
Any school-aged child is not attending school up to the
Child School Attendance
age at which they would complete class 8.
Any child has died in the household within the last five
Child Mortality
years.
Any adult or child for whom there is nutritional information
Nutrition
is malnourished.
Electricity
The household has no electricity.
The household’s sanitation facility is not improved
Improved Sanitation
(according to the Millennium
Years of Schooling
Education
Health
Living
Standard
Safe Drinking Water
The household does not have access to safe drinking
water (according to MDG guidelines) or safe drinking
water is a 30-minute walk or more from home, roundtrip.
Flooring
The household has a dirt, sand or dung floor.
Cooking Fuel
The household cooks with dung, wood or charcoal.
The household does not own more than one radio, TV,
telephone, bike, motorbike or refrigerator and does not
own a car or truck.
Assets
Relative
Weight
1/6
1/6
1/6
1/18
1/18
1/18
1/18
1/18
1/18
1/18
Global Multidimensional Poverty Index 2015
Alkire, Jindra, Robles Aguilar, Seth and Vaz - June 2015
Oxford Poverty & Human Development Initiative
Poverty in Turkey
Poverty Rate (%)
35
30
25
20
15
10
5
0
70%
2006
32
2007
30
2008
31
2009
31
2010
31
2011
30
2012
30
2013
30
2014
29
60%
25
23
24
24
24
23
23
22
22
50%
19
16
17
17
17
16
16
15
15
40%
13
10
10
11
10
10
10
09
09
Poverty in Turkey
Poverty Gap
36
34
32
30
28
26
24
22
20
2006
2007
2008
2009
2010
2011
2012
2013
2014
70%
35
31
31
32
32
31
31
29
29
60%
34
28
28
30
29
29
29
27
27
50%
32
26
26
28
27
26
27
26
24
40%
29
25
24
26
24
25
24
23
22
Poverty in Turkey
Poverty Rates Based on Purchasing Power (%)
9
8
7
6
5
4
3
2
1
0
< $2.15
2007
0.52
2008
0.47
2009
0.22
2010
0.21
2011
0.14
2012
0.06
2013
0.06
2014
0.03
< $4.30
8.41
6.83
4.35
3.66
2.79
2.27
2.06
1.62
Poverty in Turkey
Distribution of Household Consumption for Each Income Quantile
Total
20
25
1st 20%
29
2nd 20%
33
24
3rd 20%
13
26
19
15
09
28
22
4th 20%
5th 20%
18
16
24
22
19
22
Food and non-alcoholic beverages
Housing and rent
Transportation
Furniture, appliances
Restaurant and hotels
Clothing and footwear
Various good and services
Alcohol, cigaratte and tobacco
Communication
Entertainment and culture
Educational services
Health
Poverty in Turkey
Shares of Income Quantiles in Expenditure (2014)
Total consumption expenditure
8.5
13.7
Food and non-alcoholic beverages
12.4
Housing and rent
11.2
Health
8.8
Furniture, appliances
7.5
Clothing and footwear
6.6
12.0
Communication
6.5
12.5
Restaurant and hotels
6.3
Various good and services
5.7
Entertainment and culture
5.2
Transportation
4.2
40.9
25.1
16.6
37.8
22.8
15.9
43.4
22.4
14.3
41.5
22.9
16.4
10.6
37.7
23.6
18.1
9.8
40.2
23.4
16.9
12.5
45.1
24.0
45.7
16.9
20%
1st 20%
29.2
21.1
17.9
14.6
32.5
25.1
17.1
13.4
28.4
22.1
20.6
12.9
10%
22.3
18.6
15.5
11.0
37.2
20.0
15.7
9.6
0%
22.8
16.9
Alcohol, cigaratte and tobacco
Educational services 2.2 5.6
17.8
30%
2nd 20%
64.7
40%
3rd 20%
50%
60%
4th 20%
5th 20%
70%
80%
90%
100%