The only national-level research study found substantial decreases in income and household inequality

Poverty is understood as income poverty in this work. Although this reflects an indirect approach to the poverty concept in general, it is in line with the focus on monetary transfer payments.168 Since income determines each individual’s opportunity set, differences in income poverty and inequality are indicators for changes in real freedom before and after a policy reform. In order to measure this type of poverty, Foster and Sen (2010) mention two aspects that are of importance. First, those who are considered poor have to be identified out of the total target population. Secondly, the different characteristics of the identified groups must be aggregated to quantify the society’s level of poverty (Foster and Sen 2010, p. 165). Relying on income poverty, the group of poor can be identified by the determination of a certain poverty line so that everyone below this threshold is considered poor. The issue of aggregation then is simplified to the question how to rank different income distributions and “of choosing a functional form that maps different income vectors (and poverty lines) into a numerical index of aggregated poverty” (Foster and Sen 2010, p. 165). The poverty line selected in this work concentrates on relative instead of absolute poverty. Relative poverty lines have the advantages of including costs of social inclusion (Garroway and de Laiglesia 2012, p. 15). The extent of relative income poverty always depends on the income distribution of the population. Similar to the general usage in the European Union, poverty is defined here as having less than 60 % of the median equivalent income of all households at one’s disposal.169 This indicates the risk-of-poverty line (Antuofermo and Di Meglio 2012, p. 7). The equivalent (or equivalised) income of a household is the total disposable income of this household divided by a weighting factor related to the household size. This factor is determined by the modified scale of the OECD. This weighting scale states that the main receiver of income has a value of 1 while every other member of the household of at least 14 years of age accounts for only 0.5. Furthermore, every child up to the age of 13 is ascribed to a weighting factor of 0.3.170 For example, the income of a couple with a 5-year old and a 16-year old child is divided by 2.3 to calculate the household’s equivalent income.171 To measure the impact of the basic income reform on poverty, this work relies on the Foster-Greer-Thorbecke (FGT) family of poverty measures (see Foster et al. 1984).172 The FGT measure of poverty is given as (6.11) with z being the poverty line.173 While n represents the number of observations, q indicates the number of households whose income is below the poverty line. Furthermore, yi is the i-th household’s equivalent income. The term zyi z is then the normalized shortfall with regard to the poverty line. Parameter ˛ represents a weighting factor accounting for the severance of income poverty. It can be interpreted – similar to the inequality aversion that will be discussed in the following section – as a weighting of inequality among the poor and how strong this inequality effects general statements on poverty (Foster and Sen 2010, p. 179). Thus, the higher ˛ the more weight is given to households far below the poverty threshold. Both the poverty line z and the weighting factor ˛ are exogenously given. Certain values of ˛ – 0, 1, and 2 – are of specific importance because the FGT-index is able to include different poverty measures so that they become special cases within the FGT-index. Setting ˛ D 0, the FGT-index yields the headcount ratio H so that FGT˛D0 D q n D H (6.12) which measures the incidence of poverty. It is the proportion of those who are poor with respect to the total population. This means H is independent of the income distribution among the poor. ˛ D 1 represents the per capita poverty gap index which accounts for the severance of poverty. It is defined as with q D 1 q Pq iD1 yi being the arithmetic mean of all income below the poverty line. In this case FGT˛D1 is equal to the headcount ratio multiplied by the poverty gap index I (1 q z ) (Faik 1995, p. 321). It shows the mean shortfall from the poverty line expressed as a percentage of this poverty threshold. Any ˛>1 puts more weight on those income far below the poverty line. From all those, ˛ D 2 is a special case because FGT˛D2 weights the normalized shortfall just by itself (Foster and Sen 2010, p. 179). It can further be expressed as where CV is the coefficient of variation. It is defined as CV2 P D 1 q Pq iD1 .qyi/ 2 2 q (Celidoni 2011, p. 4). This class of poverty measures has been widely used in applied work on income poverty due to its convenient properties (see e.g. Anand (1983), Huppi and Ravallion (1991), Ravallion (1994), and Bourguignon and Fields (1997)).174 Table 6.19 shows the pre- and post-reform poverty rates. While the poverty line is calculated using the overall income distribution, the values in Table 6.19 reflect the fraction of a specific household type that lies below this line. The estimated overall poverty rate is about 21.97 % which is slightly higher than official figures. This discrepancy is due to the sample restriction since the analysis is confined to the population able to work. Additionally, the data base differs as official figures are based on either the German Microcensus or the EVS. However, the structure of poverty reflects the overall situation rather well. One-adult households and especially lone parents show a higher incidence of poverty, whereas poverty rates of married couples are significantly lower than the average. Families with many children are disproportionately affected from poverty as well. It should be noted, however, that the severity of poverty is not too pronounced; thus, the income distribution below the poverty line is rather flat. This gets obvious especially by looking at ˛ D 2 where the normalized difference is weighted by itself. The low values of the poverty gap are generated by the fact that even in the status quo the socio-cultural subsistence level is secured by the public transfers mainly unemployment pay II. The second part of Table 6.19 (columns 5–7) shows that substituting the meanstested benefits by a comprehensive basic income scheme lowers poverty rates significantly. The overall poverty rate drops about 5 % points from 21.97 % to 16.3 % . The decline in poverty is most distinctive for families with an overall decrease of almost one half (from 22.36 % to 13.17 %). This sharp decline is due to the installation of a child-related basic income that surmounts existing child benefits. As the table indicates, beneficiaries of the reform are mainly families with many children, married and lone parents alike. The reduction in poverty rates for childless households is less distinct, but perceptible as well. Again, married couples benefit more than one-adult households. The severance of poverty declines for all types of households as they are moved closed to the poverty line due to the higher transfer payments. This is especially true for lone parents. However, the basic income scheme reduces the heterogeneity related to income among the poor as very low-income households are supported in a better way.