Pro-poor Growth during Exceptional Growth. Evidence from a Transition Economy

The paper uses a range of methods to assess changes in income, poverty and income distribution between 2001 and 2002 in Kazakhstan. It is found that outstanding GDP growth has been translated into very modest growth in mean household income. However, both income poverty and inequality have decreased significantly and growth has been 'pro-poor', which is explained by changes in inequality accounting for almost all the changes in poverty. The elasticity of poverty with respect to both growth and inequality is also found to be high. These findings suggest that GDP changes can be, at times, disjoint from household income performance and that, when this happens, income redistribution can still play a key role for poverty reduction. Yet a much greater reduction in poverty would have occurred if mean income would also have risen. Hence, the distribution of GDP growth among factors of production and the distribution of income among households are the cornerstones of poverty reduction rather than GDP growth alone.Growth, Poverty, Inequality, Kazakhstan

Happiness, deprivation and the alter ego

The paper focuses on satisfaction with income and proposes a utility model built on two value systems, the `Ego' system - described as one own income assessment relatively to one own past and future income - and the `Alter' system - described as one own income assessment relatively to a reference group. We show how the union of these two value systems and the use of relative deprivation measures can lead to a model able to accommodate a wide range of theories on income and happiness. The model is then tested using the Consortium of Household Panels for European Socio-economic Research (CHER), a collection of 19 panel surveys including over 1.2 m. individual observations. We find absolute income to sit at the intersection between the `Ego' and the `Alter' systems and to play the most prominent role in explaining satisfaction with income. Relative deprivation is also found to be important for understanding the income-happiness nexus while we find income expectations to be less relevant once we control for absolute income. Overall, the `Alter' system (the cross-section comparison with others) seems to be more relevant in valuing income than the `Ego' system (the longitudinal self-comparison of income).happiness, deprivation, inequality.

Life satisfaction and income inequality

Do people care about income inequality and does income inequality affect subjective well-being? Welfare theories can predict either a positive or a negative impact of income inequality on subjective well-being and empirical research has found evidence on a positive, negative or non significant relation. This paper attempts to determine some of the possible causes of such empirical heterogeneity. Using a very large sample of world citizens, the author tests the consistency of income inequality in predicting life satisfaction. The analysis finds that income inequality has a negative and significant effect on life satisfaction. This result is robust to changes in regressors and estimation choices and also persists across different income groups and across different types of countries. However, this relation is easily obscured or reversed by multicollinearity generated by the use of country and year fixed effects. This is particularly true if the number of data points for inequality is small, which is a common feature of cross-country or longitudinal studies.Inequality,Poverty Impact Evaluation,Economic Theory&Research,Services&Transfers to Poor,Poverty Monitoring&Analysis

Social assistance and poverty reduction in Moldova, 2001-2004 an impact evaluation

This paper assesses the impact of social assistance benefits on household welfare in Moldova. Ignoring standard issues of impact evaluations such as selection bias, behavioral responses, unobserved heterogeneity and endogeneity, an incidence analysis suggests that increased spending on social assistance enhances the probability of moving out of poverty and reduces the probability of moving into poverty. However, double difference estimates (based on a mimicked randomized experiment) and parametric estimates (based on panel data) indicate that social benefits have not contributed to improve household welfare or reduce poverty. Double difference estimates point to a negativeimpact on welfare. Parametric estimates do not yield any consistent significant impact on welfare or poverty. The author concludes that the growth in population coverage and expenditure on cash benefits that characterized social assistance policies in recent years has not resulted in a significant improvement in welfare, all other factors being equal.Safety Nets and Transfers,Rural Poverty Reduction,Services&Transfers to Poor,,Economic Theory&Research

Life Satisfaction and Income Inequality

Do people care about income inequality and does income inequality affect subjective well-being? Welfare theories can predict either a positive or a negative impact of income inequality on subjective well-being and empirical research has found evidence on a positive, negative or non significant relation. This paper attempts to determine some of the possible causes of such empirical heterogeneity. Using a very large sample of world citizens we test the consistency of income inequality in predicting life satisfaction. We find that income inequality has a negative and significant effect on life satisfaction. This result is robust to changes of regressors and estimation choices and also persists across different income groups and across different types of countries. However, this relation is easily obscured or reversed by multicollinearity generated by the use of country and year fixed effects. This is particularly true if the number of data points for inequality is small, which is a common feature of cross-country or longitudinal studies.Happiness, Inequality

Two classes of generalized deprivation indexes

The paper uses two particular formulations of the Gini index to derive two different relative deprivation measures. We then generalize the formulation of these measures following Donaldson and Weymark (1980) and Berrebi and Silber (1985) and show how these generalizations can be considered as two different classes of indexes. An example illustrates how the use of the two classes of indexes can lead to different results in empirical applications.Relative deprivation, inequality.

Small Open Economies with Frictions in Credit Markets: Target inflation or money growth when floating?

I compare the relative merits of a policy of inflation targeting for small open economies with frictions in financial markets with an alternative floating regime that has a constant rate of domestic money growth. The differences between these two policies appear only in the dynamic properties of equilibria with credit rationing. When the probability of loan repayment is low, inflation targeting eliminates endogenous volatility when compared with a constant money growth, but equilibria remain indeterminate. When the probability of loan repayment is high, inflation targeting always improves on the stability of equilibria, and sometimes it also eliminates endogenous fluctuations.Floating exchange rates, Inflation targeting, Multiple reserve requirements, Private Information, Stabilization, Endogenous volatility

Relative deprivation, reference groups and the assessment of standard of living

This paper proposes two new indices of relative deprivation, derived from an extension of the concept of the generalized Gini for the measurement of distributional change. Population- and income-weighted relative deprivation indices are then defined and, using panel data from the Consortium of Household Panels for European Socio-Economic Research, this paper checks which of the various ways of defining individual deprivation best fits the answers given by individuals on the degree of their satisfaction with income. The analysis finds that the deprivation indices proposed are consistently and negatively correlated with income satisfaction as reported by respondents, that income weighted measures fit better than population weighted measures, and that this fit improves with countries that experienced deep institutional changes such as the transitional economies of Eastern Europe.Inequality,Economic Theory&Research,Poverty Impact Evaluation,Labor Policies,Emerging Markets

Multiple Layers of Credit and Mortgage Crises

I examine a production economy with a financial sector that contains multiple layers of credit. Such layers are designed to constitute credit chains which are inclusive of a simple mortgage market. The focus is on the nature and contagion properties of credit chains in an economy where the financial sector plays a real allocative role and agents have a nontrivial choice of whether to default on mortgages or not. Multiple equilibria with different rates of default are observed, due to the presence of strategic complementarities. Default can trigger a financial crisis as well as constrain the purchases of factors of production, thus leading to potentially serious effects on real activity.Endogenous default, Mortgage Crises, Payments System

Evaluating Pro-poor Transfers When Targeting is Weak: The Albanian Ndihma Ekonomike Program Revisited

The Albanian Ndihma Ekonomike is one of the first poverty reduction programs launched in transitional economies. Its record has been judged positively during the recession period of the 1990s and negatively during the more recent growth phase. This paper reconsiders the program using a regression-adjusted matching estimator rst suggested by Heckman et al. (1997, 1998) and exploiting discontinuities in program design and targeting failures. We nd the program to have a weak targeting capacity and a negative and signicant impact on welfare. We also nd that recent changes introduced to the program have not improved its performance. An analysis of the distributional impact of treatment based on stochastic dominance theory suggests that our results are robust.Social assistance, Poverty, Impact Evaluation, Albania