Income-Based and Consumption-Based Measurement of Absolute Poverty: Insights from Italy

Despite the debate about the introduction of an official absolute poverty line is growing in the EU, at the moment Italy is the only EU country providing an official measure of absolute poverty. Absolute poverty is estimated in Italy with reference to household consumption using the Household Budget Survey (HBS), but it can be estimated also relying on incomes. Focusing on the Italian experience, this article contributes to the literature and to the national and European policy debate about poverty measurement in three ways. First, a detailed review of the methodology adopted in Italy to compute absolute poverty is presented. Second, the article investigates what changes when absolute poverty is assessed relying on income (using EU-SILC data) instead than on consumption (using HBS). Third, a comparison between income-based absolute poverty and the two main indicators of poverty and social exclusion used at the EU level-at risk of poverty rate, AROP, and severe material deprivation index, SMD-is shown. Main findings are: (1) the level and the characteristics of the poor change when absolute poverty is measured with reference to income rather than to consumption; (2) the incidence of income-based absolute poverty has risen more steeply than the incidence of the AROP since the upsurge of the economic crisis in 2008; (3) a very low correlation at the individual level between the income-based absolute poverty status and the SMD status emerges, thus strongly questioning the idea of using SMD as a proxy of absolute poverty.

Automated summary

This article examines the measurement of absolute poverty in Italy and compares the results when using income-based and consumption-based methods. The study finds that measuring poverty based on income leads to changes in the level and characteristics of poverty, and the incidence of income-based absolute poverty has increased more rapidly compared to the poverty rate. Furthermore, there is a low correlation between income-based absolute poverty and severe material deprivation at the individual level.