Is Low Spending or Low Income a Better Indicator of Whether or Not a Household is Poor: Some Results From the 1985 Family Expenditure Survey

ABSTRACT The identification of the poor in this paper follows that of most contemporary applied work and consists of comparing a scaler indicator of welfare with a predetermined minimum level. The data is provided by the 1985 Family Expenditure Survey. Two measures of welfare are developed, one based on income which reflects the entitlement analysis of poverty and the other on expenditure, reflecting the standard of living. Households ranked very low by expenditure are considerably less likely to be ranked highly by income than vice versa. Further doubt on the rankings suggested by the income measure is provided by ownership of consumer durables. The expenditure measure suggests that the number of poor retired individuals is more than three times that implied by the income measure. The instability of the latter measure suggests that more confidence can be placed on assertions based on evidence employing the expenditure measure.