CHAPTER 5 Poverty Impacts of Cash Transfer Programs C


ash transfer programs are increasingly used as a component of pov- erty reduction strategies. The degree to which these programs affect poverty on a broad level varies by country and program and is affected


by the poverty rate in each country, the size of the target population, and the size of the transfer, among other factors. Poverty reduction can be evaluated using three different measures, known as the Foster, Greer, and Thorbecke class of poverty measures (Foster, Greer, and Thorbecke 1984). The poverty headcount measure represents the share of the population that is poor, that is, the proportion of the population for which income or consumption falls below the poverty line. The poverty gap measure describes the depth of pov- erty in a given population. Defined as the mean distance separating the poor from the poverty line (with the nonpoor having a mean distance of zero), the poverty gap corresponds to the amount of resources that would be needed to pull the poor up to the poverty line. The severity of poverty measure, or the squared poverty gap, takes inequality of the poor into account by weigh- ing the extreme poor, who fall far below the poverty line, more heavily than the less poor, who may hover just below the poverty line (Coudel, Hentschel, and Wodon 2002, 405–407). These measures are best used in combination because they provide differ- ent kinds of information about poverty. Using the headcount measure, a policy that benefits those just below the poverty line appears as effective as a policy that brings the extreme poor closer to the poverty line. Adding the poverty gap and severity of poverty measures to a poverty analysis captures the effect of a poverty intervention on all poor households, no matter where they fall below the poverty line, thereby providing a more complete picture of potential program impacts. For each of these measures, a poverty line or the minimum income or expenditure necessary to keep a household out of poverty must be defined. Poverty lines vary according to different assumptions and methodologies. For example, adjustments of consumption based on age or gender or on assump- tions of economies of scale can affect a household-level poverty line. Poverty


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