Premature mortality and poverty measurement in an OLG economy

Lefèbvre, Mathieu;Pestieau, Pierre;Ponthiere, Gregory
(2017) , 43 pages

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  • Lefèbvre, MathieuUniversité de Strasbourg
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  • Pestieau, PierreUniversité de LIège, CORE and Paris School of Economics
    Author
  • Ponthiere, GregoryUniversité Paris Est, Paris School of Economics and Institut universitaire de France
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Abstract
Following Kanbur and Mukherjee (2007), a solution to the "missing poor" problem (i.e. selection bias in poverty measures due to income-differentiated mortality) consists in computing hypothetical poverty rates while assigning a fictitious income to the prematurely dead. However, in a dynamic general equilibrium economy, doing "as if" the prematurely dead were still alive is likely to affect wages, output and capital accumulation, with an uncertain effect on poverty. We develop a 3-period OLG model with income-differentiated mortality, and compare actual poverty rates with hypothetical poverty rates that would have prevailed if everyone faced the survival conditions of the top income class. Including the prematurely dead has an ambiguous impact on poverty, since it affects income distribution through capital dilution, composition effects and horizon effects. Our results are illustrated by quantifying the impact of income-differentiated mortality on poverty measures for France (1820-2010).
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Lefèbvre, M., Pestieau, P., & Ponthiere, G. (2017). Premature mortality and poverty measurement in an OLG economy (CORE Discussion Paper 2017/16). https://hdl.handle.net/2078.5/180085