Poverty gap index
Also called: Poverty gap, Depth of poverty · Topic: Poverty and Inequality: Measurement and Policy · NCERT: Beyond NCERT
Meaning
The poverty gap index (PGI) measures the depth of poverty, meaning how far below the poverty line the poor are. For each poor person, take their shortfall from the line as a share of the line. Count everyone who is not poor as zero, then average over the whole population.
PGI = (1/n) Σ (z − yᵢ)/z, summed over the poor only. Here z is the poverty line, yᵢ is a poor person's income and n is the total population.
It is the FGT measure with α = 1. PGI × poverty line × population gives the minimum cost of ending poverty if targeting were perfect.
Example
Take a poverty line of 100 and four people with incomes 60, 90, 120 and 150. The two poor people's gaps are 0.40 and 0.10, so PGI = (0.4 + 0.1)/4 = 0.125. If the poorest person fell from 60 to 40, PGI would rise to 0.175, but the head-count ratio would stay at 50%.
Don't confuse with
- Head-count ratio: it counts only the share of people who are poor (incidence). It ignores how far below the line they are.