Poverty gap index

The poverty gap index is a measure of the degree of poverty in a country. It is defined as "extent to which individuals on average fall below the poverty line, and expresses it as a percentage of the poverty line."

The poverty gap index is an improvement over the poverty measure head count ratio, which simply counts all the people below a poverty line in a given population and considers them equally poor. Poverty gap index estimates the depth of poverty by considering how far the poor are from that poverty line on average.

The poverty gap index sometimes referred to as 'poverty gap ratio' or 'pg index' is defined as an average of the ratio of the poverty gap to the poverty line. It is expressed as a percentage of the poverty line for a country or region.

The most common method measuring and reporting poverty is the headcount ratio, given as the percentage of the population that is below the poverty line. For example, The New York Times in July 2012 reported the poverty headcount ratio as 11.1% of American population in 1973, 15.2% in 1983, and 11.3% in 2000. One of the undesirable features of the headcount ratio is that it ignores the depth of poverty; if the poor become poorer, the headcount index does not change.

Poverty gap index provides a clearer perspective on the depth of poverty. It enables poverty comparisons. It also helps provide an overall assessment of a region's progress in poverty reduction and the evaluation of specific public policies or private initiatives.

The poverty gap index (PGI) is calculated as,

or

where ${\displaystyle N}$ is the total population, ${\displaystyle q}$ is the total population of poor who are living at or below the poverty line, ${\displaystyle z}$ is the poverty line, and ${\displaystyle y_{j}}$ is the income of the poor individual ${\displaystyle j}$. In this calculation, individuals whose income is above the poverty line have a gap of zero.