Essay: Treating relative poverty

Sample Essay

On a more technical note, there have been reservations about treating relative poverty as more or less synonymous with and indicative of income inequality. Relative poverty only considers incomes of households below a designated percentage of the median; inequality takes into account incomes across the entire income distribution.

This means that public policies which affect income inequality, whether intentionally or incidentally, would not necessarily affect relative poverty. For example, restoring the federal tax code to its 1999 structure (because of, say, concerns about the concentration of economic power and political influence) would reduce income inequality but would essentially have zero effect on relative poverty because virtually all households that would bear more taxes are in the top tenth of the income distribution. Conversely, further reductions in the tax on dividends and capital gains would increase inequality and leave relative poverty unchanged. However, policies that reduce relative poverty (e.g. expanding the EITC) would generally reduce overall inequality, other things equal. From this discussion of poverty measurement it has been conclude that:

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