The new features of the residual component of the absolute poverty basket

Abstract

The Italian National Institute of Statistics calculates ever year the absolute poverty threshold as the monetary value, at current prices, of a fixed basket of goods and services considered essential to reach the minimum acceptable standard of living to avoid serious forms of social exclusion in the context in which one lives. The cost of the basket (and so the threshold) varies according to the household composition and territory of residence. To review and update the 2005 methodology for estimating absolute poverty[1], an Inter-Institutional Scientific Commission[2] was established in 2021, and introduced some changes[3] with regard to the estimation of the three main components of the reference basket (i.e. food, housing, residual) and its annual revaluation, as well as the use of new data sources[4]. This paper outlines the process of reviewing the residual component of the basket, explaining the changes introduced and their reasons. The analysis focuses on the composition of the basket of goods and services making up the residual expenditure, on the specifications of the linear regression model for estimating the coefficients to be applied to the monetary value of the food component to obtain that of the residual component, and finally on the food basket to be used for estimating the monetary value of the residual component.

[1] Taking into account the innovations introduced in the Italian Household Budget Survey from 2022 onwards (i.e., the most recent version of the COICOP Classification, that is COICOP 2018) and the new survey reference population based on the new series released by Istat's Permanent Census of Population and Housing (for further details: https://www.istat.it/en/statistical-themes/censuses/permanent-census-of-population-and-housing/results-of-the-permanent-population-census/).

[2] The Inter-Institutional Scientific Commission on Absolute Poverty (IISCAP) was chaired by the President of Istat, with the participation of experts from academia, the Bank of Italy, the Tax Agency, the Council for Agricultural Research and Economics, and other government agencies.

[3] The Commission has however validated the 2005 general methodological framework in terms of the main theoretical assumptions and basket components: see Freguja and Polidoro (2024).

[4] For details on the revision of the food and housing components and the annual revaluation of the basket, see the related papers within this same issue of the journal.