Estimation of Absolute Poverty Line

: Verifying Public Assistance Standards Using the “Engel Method”

Abstract

This paper aims to provide an absolute-standard perspective about setting the poverty line in Japan, where the household income has been declining over the past decades.

We estimated a poverty standard using the Engel method, developed and adopted for calculating the minimum living standard for Social Assistance in Japan in the 1960s. Subsequently, we compared the estimated poverty standard with the recent Social Assistance standard, as well as the relative poverty line.

Our analysis showed that the estimated poverty standard strongly depends on the calculation of food expenditure and the estimation models of the Engel coefficient. Therefore, the results vary in the range 140,000-232,000 yen per month for couples with one child, which covers the social assistance benefit for that family.

The Engel method requires deciding how the definition of nutritional food products and their price should be calculated, as well as which regression model is more appropriate. It is too early to conclude whether the relative poverty line is lower than the absolute line by the Engel method as of 2009, but we can see the necessity of continuing to verify whether the absolute poverty line is ensured by the social assistance system.