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Measuring Richness and Poverty

Andreas Peichl (), Thilo Schaefer and Christoph Scheicher

No 06-11, FiFo Discussion Papers - Finanzwissenschaftliche Diskussionsbeiträge from University of Cologne, FiFo Institute for Public Economics

Abstract: In this paper, we define a new class of richness measures. In contrast to the often used headcount, these new measures are sensitive to changes in rich person's income and therefore allow for a more sophisticated analysis of richness. We demonstrate the application of these new measures to analyse the development of poverty and richness over time in Germany, to compare Germany to the other EU-15 countries and to investigate the impact of tax reforms on poverty and richness. The latter analysis is based on micro data provided by the simulation model FiFoSiM using German income tax and household survey micro data. We show that it partly depends on the measure whether the development of richness in Germany is increasing or decreasing. The cross country analysis yields several groups of countries according to their values of poverty and richness indices. The new richness measures show that the effects of flat tax reform scenarios depend on the reform parameters. Using these examples, we show the importance of taking into account the dimension of changes and not only the number of people beyond a given richness line (headcount). We propose to use the new measures in addition to the headcount index for a more comprehensive analysis of richness.

Keywords: richness; affluence; poverty; tax reform; flat tax (search for similar items in EconPapers)
JEL-codes: I32 H23 D31 (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-pbe
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:uoccpe:5153

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