On Some Statistical Methods for Modelling the Incidence of Poverty

This paper analyzes a common method of estimating the pattern of individual characteristics associated with poverty – the logit/probit technique applied to a dummy variable identifying those individuals who are below a poverty line. We show that this procedure is seriously flawed by a fundamental logical difficulty and further statistical complications when the poverty line is estimated or when generalized poverty measures are used. An alternative approach is proposed, based on a semi‐parametric series expansion appproximation to the conditional income distribution. Estimation, testing and summary procedures are established and applied to Hungarian survey data.