12000 Per capita

GDP * Can 11000- X Nor 10000- Ger x 9000- N'lands Post-transfer poverty gap as a percentage of GDP

The diagram shows that although we might expect the richer countries to have a lower poverty gap, there is in fact a tendency for the richer countries, notably the US and Canada, to have the highest post-transfer poverty gaps. At the other extreme the UK, which is the poorest country in the sample, has the lowest poverty gap. This has also been observed by Smeeding et al (1985b:43) who note that:

The UK does remarkably well in reducing the pre-transfer post-tax poverty gap given their relatively low percentage of GDP spent on income transfers.

Overall the relationship is, on this evidence, rather weak. It should be noted that this question has been tackled here in a fairly prelim inary way and therefore the results should be read accordingly.

In Tables 4.7 to 4.9 the aggregate poverty gap pre- and post- transfer is expressed as a percentage of GDP for each poverty interval. The proportional reduction in the poverty gap is also shown. The tables show these estimates for family income adjusted by both the OECD and Whiteford equivalence scales.33

32 Data from Summers and Heston, 1988.

T ab k ^ 7^ R ed u ctior^ n j> overtsy^

Poverty gap as a percentage of GDP, pre- and post- transfer:

OECD Equivalence Whiteford Equivalence

Pre- Post- Reduction Post- Reduction

A u stralia 3.4 0.5 85 3.5 0.5 86 C an ad a 2.9 0.6 78 3.0 0.6 80 France 4.7 0.5 89 4.8 0.5 90 Germany 4.9 0.3 95 5.2 0.3 95 N eth erlan d s 5.0 1.0 80 5.1 1.0 81 N orw ay 3.4 0.3 92 3.7 0.3 92 Sweden 3.0 0.2 94 3.1 0.2 94 S w itzerland 3.4 0.7 81 3.6 0.7 80 United Kingdom 2.4 0.1 97 2.6 0.1 97 U nited States 4.0 1.2 69 4.0 1.2 69

Table 4.8. Reduction in poverty gaps for fam ilies, 50% poverty interval. Poverty gap as a percentage of GDP, pre- and post- transfer:

OECD Equivalence Whiteford Equivalence

ZlSz Post- Reduction _ZlSz Post- Reduction

A u stralia 4.5 0.9 79 4.7 0.9 81 C an ad a 4.2 1.3 70 4.2 1.2 72 France 6.7 1.0 85 6.6 0.9 87 Germany 6.4 0.6 91 6.7 0.6 92 N eth erlan d s 6.5 1.4 79 6.6 1.3 80 N orw ay 4.6 0.5 90 5.0 0.5 90 Sweden 4.1 0.4 91 4.2 0.3 92 S w itzerland 4.9 1.2 75 5.2 1.3 75 United Kingdom 3.3 0.2 93 3.5 0.3 92 • United States 5.6 2.3 60 5.6 2.1 60

Table 4.9. Reduction in poverty gaps for fam ilies, 60% ]poverty interval. Poverty gap as a percentage of GDP, pre- and post- transfer:

OECD Equivalence W hiteford Equivalence Pre- Post- Reduction Pre- Post- Reduction

A u stralia 5.8 1.6 72 6.0 1.7 72 C an ad a 5.7 2.2 61 5.7 2.2 62 France 9.0 1.8 80 8.8 1.6 82 Germany 8.0 1.2 85 8.3 1.1 87 N eth erlan d s 8.1 1.9 76 8.1 1.8 78 N orw ay 5.9 0.8 86 6.4 0.9 86 Sweden 5.3 0.6 88 5.4 0.6 89 S w itzerland 6.7 2.4 65 7.0 2.3 67 United Kingdom 4.3 0.7 84 4.5 0.8 82 United States 7.6 3.7 51 7.5 3.5 50

70

43.1. Post-transfer poverty gaps.

A first point to note is that at each poverty interval, the estimates of the size of the poverty gap post-transfer for each of the equivalence scales are virtually identical in both absolute terms and in the rankings of countries based on these estimates. The rank correlation coefficients shown in Table 4.10 are very close to unity. In addition, the poverty gap produces a fairly stable set of rankings across the Z* range. The rank correlation coefficients shown in Table 4.11 are all above 0.94.

Rank correlates for : 40% interval $0% interval _{60% interval} OECD-Whiteford 1.0 0.97 0.99

Table 4.11. Correlation coefficients for post*transfer poverty gap ranks for Z* range. Z correlates Whiteford scale

4 0 -5 0 0.98 0.99

5 0 -6 0 0.94 0.97

4 0 -6 0 0.95 0.95

In contrast to the substantial variations in the post-transfer poverty head- counts, the poverty gap measure gives a virtually identical picture whichever equivalence scale is used, and whichever poverty line is used. It is clear that the poverty gap is a far more robust measure of poverty for cross-national comparisons than is the head-count. Because of the stability of these rankings the discussion in the following sections uses the OECD scale results for the 50% poverty interval.

Table 4.12. Ranks on size of the poverty gap at the 40,50 and 60 % intervals, OECD scale. Rank 40% line 50% line 60% line

1 UK 0.1 UK 0.2 Sweden 0.6 2 Sweden 0.2 Sweden 0.4 UK 0.7 3 Germany 0.3 Norway 0.5 Norway 0.8 4 Norway 0.3 Germany 0.6 Germany 1.2 5 Australia 0.5 Australia 0.9 Australia 1.6 6 France 0.5 France 1.0 France 1.8 7 Canada 0.6 Switzerland 1.2 Netherlands 1.9 8 Switzerland 0.7 Canada 1.3 Canada 2.2 9 Netherlands 1.0 Netherlands 1.4 Switzerland 2.4 10 USA 1.2 USA 2.3 USA 3.7

Table 4.12 shows the ranking of the LIS countries across the Z* range based on the poverty gap as a percentage of GDP. Comparison with Table 4.6 shows that the poverty gap produces a significantly different ranking to the head- count measure. In particular the UK, Netherlands and Australia, are ranked quite differently on the post-transfer poverty gap. The effects of clustering of

incomes in the UK around the poverty lines which causes the head-count to vary dramatically across Z* is removed and we see that in the UK, income transfer policies result in the majority of the beneficiary population receiving incomes which are around the 40% poverty interval. To a lesser extent this is also true of Australia. The reverse of this case is the Netherlands which has a low head-count but a sizeable poverty gap, indicating that those who are not lifted out of poverty remain some distance from the poverty line.34 Of the remaining countries, Sweden and Norway feature in the top ranks consistent with their head-count ranks. In the upper-middle ranks Germany and France are joined by Australia, while the Netherlands falls to the lower- middle rank with Switzerland and Canada. The US runs a long way last, consistent with its poverty head-count.