A Path-Dependent Poverty Measure

The paper provides the axiomatic characterization of a new poverty measure, the path-dependent poverty index. This is a two period index taking into account not only individuals current and past deprivation levels, but also the relative position with respect to their previous income status. Given two populations with the same distribution of incomes, path-dependent poverty is higher for the population where all individuals experienced an income fall. Not only they are poor, they also feel the pain for their loss. The new index is illustrated with an application to EU countries.