Discussion Papers,
Statistics Norway, Research Department

Abstract: As an alternative to the conventional methods for measuring chronic poverty, this paper proposes an interpersonal comparable measure of permanent income as a basis for defining and measuring chronic poverty. This approach accounts for the fact that individuals regularly undertake inter-period income transfers. Moreover, the approach allows for individual-specific interest rates on borrowing and saving as well as for the presence of liquidity constraints. Due to the general nature the proposed method proves useful for evaluating the theoretical basis of the standard methods for measuring chronic poverty.

Keywords: Intertemporal choice; liquidity constraints; permanent income; chronic poverty.

JEL-codes: D71; D91; I32 March 2007

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