Re-scaling the monetary value of the food component of absolute poverty basket: revision of saving coefficients and alternative approaches

Abstract

Aim of the paper is to describe the revision of the coefficients for re-scaling the monetary value of the food basket for absolute poverty estimates. This revision is part of the work of the Inter Institution Scientific Commission on Absolute Poverty (IISCAP) set up by Istat to revise and update the current methodology. The methodology proposed by Istat (2009) for re-scaling the monetary value of the food component of absolute poverty basket is based on Households’ Budget Survey data and produces scaling coefficients representing savings that a family can achieve. The hypothesis that a household realizes actual savings from various dimensions of choice and that these vary with consumer demographics is well-described in economic literature (Griffith et al., 2009) and is confirmed by the evidence.  Current Istat methodology primarily reproduces the impact on food expenditure of promotions and surcharges on price levels associated with households’ demographics, but it cannot isolate the other influences. The coefficients analysed and described in this paper are mainly based on the vast literature available for the equivalence scales. Therefore, the approach used for the revision of saving coefficients is potentially valid and suitable for new estimates of equivalence scales (Carbonaro, 1985; Betti, 1999). The Commission also defined a roadmap to infer the impact of discounts and surcharges on prices with the introduction of models based on prices/quotations from digital transaction recorded at the cash registers (Scanner Data).