that even for a developed country like the United States, consumption is a better measure especially for those at the lower end of the distribution.

In this paper we use expenditure as a basis for poverty and inequality measurement but also examine the income data and compare trends using both income and consumption measures.

Whatever welfare indicator is chosen, it is necessary to aggregate information provided at the household or individual level. The main guiding principle for the welfare aggregate is to make it as comprehensive as possible, but minimizing measurement errors through inclusion of components which may be noisy. For example, food consumption, typically, includes own production, transfers and food eaten outside home which pose challenges during the data collection phase. Nonfood consumption usually excludes lumpy infrequent expenditures (e.g. funerals, weddings), investment and items which are hard to estimate accurately (public goods). Durables require a special treatment because they are bought at a particular point in time, but consumed over a period of several years. Therefore, consumption should include only the annual use value of a durable rather than purchase value. The same principle should be applied to measure the value of housing services (Deaton and Zaidi 2002, Haughton and Khandker 2014).

There is no consensus in the literature on whether health and education expenditures should be included. One argument to exclude health expenditures is because they may reflect a regrettable necessity and do not contribute to welfare (e.g. expenditure to treat cancer). In contrast, preventive care expenditure clearly contributes to higher utility and welfare, but practically it is often difficult to distinguish between them. Education expenditures are another controversial item because they are associated with investment in the future rather than current consumption. Nevertheless, this component is often included in the welfare aggregate following standard national income accounting practice (Deaton and Zaidi 2002).

Having constructed the welfare aggregate, there is a need to make additional adjustments to facilitate ranking of individuals or households. One of the most important adjustments is spatial and inter-temporal deflation to account for temporal and spatial difference in prices faced by the population. The second important change is related to adjustment of the welfare aggregate for household composition. This can be done by simply dividing household consumption by total household size or by taking into account economy of scale and equivalence scale.

After adjusting the welfare aggregate as described above, the second step is construction of a poverty line which is intrinsically linked to the measure of welfare. The welfare aggregate and the poverty line should be coherently measured. Households whose consumption expenditures or income fall below this line are considered poor. Defining a national official poverty line is a long empirical process led by national authorities of the country. Broadly speaking, it requires many steps including defining an average nutritional requirement or multiple requirements depending on the method chosen, costs of meeting energy requirement and the nonfood component (Ravallion 1998).

For the purpose of international comparison, international poverty lines are often used. The most widely used poverty lines are 1.25 USD at 2005 PPP and its equivalent in 2011 PPP - 1.90 USD (Ferreira et al. 2015). They were established by the World Bank as averages of the national poverty lines of the 15 poorest developing countries expressed in PPP terms to monitor global extreme poverty (Chen and Ravallion 2010). Higher international poverty lines can be used by countries to measure wellbeing if necessary. In this report international poverty lines are used based on USD in 2011 PPPs.

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