The Gini Methodology pp 343-364 | Cite as

# Incorporating Poverty in Policy Analysis: The Marginal Analysis Case

## Abstract

The main purpose of this chapter is to expose the reader to additional tools that can be helpful in analyzing the distributional impact of a governmental policy. Assuming that one accepts the Gini coefficient of after-tax income as representing the social attitude toward the income distribution then one can summarize the effects of actions taken by the government by the Gini income elasticity (GIE). Decomposing the GIE by the contributions of the different sections of the income distribution enables one to both use the Gini as representing the social attitude and at the same time target the policy to sections of the distribution. The decomposition of the GIE presented is actually identical to the decomposition of the Gini regression coefficient applied to the Gini coefficient. The main message is that analyzing the effect of public policy by concentrating only on the poor population is not an appropriate approach because it violates the Pareto principle of efficiency and therefore leads governments and researchers to adopt and recommend policies that contradict the verbal declarations of the targets of the policies. On the other hand, by using a decomposition approach of the Gini coefficient or of the EG coefficient, the policy is consistent with the Pareto principle of efficiency and is based on additional useful information that is thrown away when dealing with traditional poverty analysis. An additional type of decomposition is needed whenever one is interested in targeting. We call a policy a targeted one whenever the policy instrument affects only a portion of the population. In this case we will want to decompose the effect of the policy to the contributions of two instruments: the choice of the subpopulation affected (i.e., targeting) and the effect on the subpopulation affected. The issue of targeting is not covered in this book. We refer the interested reader to Wodon and Yitzhaki (2002a, 2002b).

### Keywords

Covariance Transportation Income Stratification Petrol### References

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