Research summary
Measures of poverty and inequality often face a trade-off: they either possess desirable theoretical properties but are difficult to interpret and apply, or they are easy to use and understand but fail to satisfy essential properties. In particular, many of the measures that are widely used by policy-makers – e.g., the poverty headcount, the poverty gap, or the GINI – fail to prioritize the poorest populations.
This research aims to develop new measures that combine intuitive interpretation with strong theoretical foundations and properties. Specifically, we seek measures that use meaningful units, can be readily estimated with existing data, and remain sensitive to distributional changes while allowing for decomposition across population subgroups.
Expected result
To overcome this, we developed a new, intuitive welfare index with excellent properties: the Prosperity Gap. It is "the average factor by which individual incomes must be multiplied to reach a reference income level." Its simplicity makes it easy to understand and communicate. The index also has intuitive units: it is the number of days needed to achieve a reference income. For example, in 2019, people worldwide needed an average of five days to earn $25, a significant improvement from 1990, when 11 days were required.
The new index also has excellent properties, being additively decomposable in population subgroups and fully accounting for the depth and severity of poverty. Its changes can be meaningfully decomposed into average income growth and changes in a new inequality measure, which also has interesting properties.
Collaborations
The World Bank
Research progress
The World Bank recently adopted the Prosperity Gap to monitor progress toward Shared Prosperity, one of its core objectives. An online platform was developed monitor Shared Prosperity globally and across countries.
Preliminary results
- Kraay, A., Decerf, B., Jolliffe, D., Lakner, C., Ozler, B., Sterck, O., & Yonzan, N. (2023). A new distribution sensitive index for measuring welfare, poverty, and inequality. World Bank.
- Sterck, O. (2024). Poverty without Poverty Line. CSAE Working Paper. WPS/2024-07.
- Prosperity Gap Dashboard: https://blogs.worldbank.org/en/opendata/updated-estimates-prosperity-gap and https://datanalytics.worldbank.org/pg_dashboard/
- Moramarco, D., & Sterck, O. (2025). A New Class of Decomposable Inequality Measures. Available at SSRN.
See my website for regular updates: https://oliviersterck.wordpress.com/
Funding
The World Bank, FWO
Contact persons
Olivier Sterck
olivier.sterck@uantwerpen.be