Povery Sector

Purpose and Perspective

The Poverty sector describes how relationships between GDP, sector production (agriculture, industry, and services), income distribution and redistribution influence poverty measured as the proportion of the population with after tax incomes falling below the national and international poverty lines. The sector structure provides the opportunity to assess the influence of tax progression and subsidy and transfer policy on poverty rates.

The Poverty and Income Distribution sectors are tightly coupled. Lorenz curves for salaries and wages and for capital remuneration generated in the Income Distribution sector provide the distributional profiles for the determination of average income by percentile in the Poverty sector. Policies for income redistribution implemented in the Poverty sector influence the after-tax average percentile income that, in turn, provides the foundation for calculation of the Gini coefficient in the Income Distribution sector.

Model Structure and Major Assumptions

Exogenous Input Variables

  • Subsidies and transfers distribution curve (policy input) – Units: Dmnl

  • Domestic revenue progression rate (policy input) – Units: Dmnl

  • National and international poverty lines – Units: Lcu/(year*person)

  • Taxation threshold to poverty line ratio – Units: Lcu/(Year*person)

Initialization Variables


Modeling Details

By way of the subsidies and transfers distribution curve and the domestic revenue progression rate, users can set the future distribution of financial inflows and outflows between the households sector and the government. This allows testing the long-term impacts of various redistribution policies that can be implemented by the government.

Footnotes and References

[1] Rima, I. (2009). Development of Economic Analysis: 7th Edition. New York: Routledge.

[2] Shrestha, M., Min, R., & Fassler, S. (2012). An Integrated Framework for Financial Positions and Flows on a From-Whom-to- Whom Basis: Concepts, Status, and Prospects. IMF Working Paper WP/12/57. International Monetary Fund.