Poverty Gap Index

Definition

 It is defined as the average poverty gap in the population as a proportion of the  poverty line.

·  The poverty gap index, sometimes referred to as poverty gap ratio or PG index,

·   The poverty gap index is a measure of the intensity of poverty.

· The poverty gap index is an improvement over the poverty measure headcount ratio which simply counts all the people below a poverty line, in a given population, and considers them equally poor.

·     Poverty gap index estimates the depth of poverty by considering how far, on the average, the poor are from that poverty line

Significance

·        Poverty gap index provides a clearer perspective on the depth of poverty.

·     It enables poverty comparisons. 

·      It also helps provide an overall assessment of a region's progress in poverty alleviation and the evaluation of specific public policies or private initiatives

The poverty gap index (PGI) is calculated as,

or

where  is the total population,  is the total population of poor who are living at or below the poverty line,  is the poverty line, and  is the income of the poor individual . In this calculation, individuals whose income is above the poverty line have a gap of zero.

By definition, the poverty gap index is a percentage between 0 and 100%. Sometimes it is reported as a fraction, between 0 and 1. A theoretical value of zero implies that no one in the population is below the poverty line. A theoretical value of 100% implies that everyone in the population has zero income. In some literature, poverty gap index is reported as  while the headcount ratio is reported as 

Features

·  The poverty gap index can be interpreted as the average percentage shortfall in income for the population, from the poverty line

·    If you multiply a country's poverty gap index by both the poverty line and the total number of individuals in the country you get the total amount of money needed to bring the poor in the population out of extreme poverty and up to the poverty line, assuming perfect targeting of transfers

·    The poverty gap index is an important measure beyond the commonly used headcount ratio.

·   Two regions may have the similar headcount ratio, but distinctly different poverty gap indexes.

·     A higher poverty gap index means that poverty is more severe.

·    The poverty gap index is additive.

· The index can be used as an aggregate poverty measure, as well as decomposed for various sub-groups of the population, such as by region, employment sector, education level, gender, age or ethnic group.

Limitations

·        Poverty gap index ignores the effect of inequality between the poor.

·     It does not capture differences in the severity of poverty amongst the poor.

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