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Poverty, Resource Equality, and Social Policies

Final Report Summary - PORESP (Poverty, Resource Equality, and Social Policies)

The main achievement of the project has been to propose new analyses of poverty inspired by recent developments in welfare economics. The crucial novelty consisted in defining poverty in a way that respects the preferences of the poor individuals. With regard to poverty measurement, it implies that the poverty threshold is defined in terms of a minimal preference satisfaction level to reach, instead of a minimal income or consumption level. New poverty measures have been defined, axiomatically justified, and then empirically estimated. Among the applications, taking account of the fact that preferences are also defined over average income of the society one lives in has given rise to a new way of trading-off between absolute and relative views on poverty. It has also been shown that the new poverty measures can be used to define general well-being indices that can ultimately be used for any socal index (inequality, sustainability, social mobility, etc.).
The new way of looking at poverty has led to developing new methods of evaluating transfer policies aimed at alleviating poverty. These methods are based on notions of social welfare that combine the normative value of poverty reduction with values of preference efficiency (the celebrated Pareto principle) and preference responsibility (the fairness principle that mere differences in labor time choices do not justify to redistribute incomes). With these notions of social welfare, it becomes possible to assess tax-benefit systems and design desirable fiscal reforms in a completely new way. The only observation that is required is the shape of the budget sets that individuals face. Such budgets can be computed thanks to fiscal simulators, such as the one developed by the OECD. Several applications have been proposed. This work can be generalized to other notions of social welfare based on fairness principles provided preferences are estimated. Several techniques of preference estimations have been used.
Additional works have taken account of the fact that the take-up of transfer benefits is not complete, and others have taken account of the fact that the tax-benefit systems play an insurance role in addition to redistribution.
The project has also echoed recent developments in family economics, which propose to look at households as a collection of individuals whose interests may conflict with each other. As a result, the evaluation and design of public policies have to take into account heterogenous individual responses within the household. Our empirical works have shown that the legal marriage frame has a deep impact on the distribution of well-being within the household. The response of female labor force participation to labor market conditions also depends on the legal marriage frame as well as on distribution factors that affect the relative power of partners within the household.