Poverty and Inequality Components: a Micro Framework

This paper explores the link between poverty and inequality through an analysis of the poverty impact of changes in income-component inequality and in between-and within- group inequality. This can help shed light on the theoretical and empirical linkages between poverty, growth and inequality. It might also help design policies to improve both equity and welfare. The tools are illustrated using the recent 2004 Nigerian national household survey. The analytically derived linkages are supported by the empirical illustration, and interesting insights also emerge from the empirical analysis. One such insight is that both the sign and the size of the elasticities can be quite sensitive to the choice of measurement assumptions (such as the choice of inequality and poverty aversion parameters, and that of the poverty line). The elasticities are also very much distribution-sensitive and dependent on the type of inequality-changing processes taking place. This also suggests that the response of poverty to growth can also be expected to be significantly context specific