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# **5.8 Did Poverty Decline?**

The simulations suggest that poverty declined in Tanzania after 1994. This decline is attributable to the key assumption underlying the simulation approach, that positive per capita GDP growth translates into consumption increases for all population groups (and consequently a reduction in poverty). The appropriateness of this assumption can be scrutinized by investigating the implications of the possibility that poverty did _not_ decline. Specifically, if poverty did not decline between 1995 and 2001, while per capita GDP grew at the levels shown in the national accounts, what would the level of inequality had to have been in 1994? The assumption that poverty did not decline would require that all the growth was concentrated among the non-poor, meaning that inequality increased and was therefore lower in 1994 than in 2001.

We consider this scenario by simulating changes backwards from 2001 to 1994, using the 2000/01 HBS data. In this simulation, we set out to keep poverty constant, while adjusting for changes in mean consumption.<sup>11</sup> This can be done by holding consumption constant for those in poverty in 2001 (so that the fraction of poor remains unchanged) and restricting all growth to the non-poor. We also assume that consumption grew at the same rate among those households that experienced some growth.

Note that growth in consumption going backward in time corresponds to reducing consumption. Now consider a household whose consumption in 2001 is just above the poverty line. If we were to reduce its consumption as we move backwards in time, the household would fall below the poverty line and poverty in 1994 would not be identical to poverty in 2001. Through a series of simulation exercises, we find that to keep the level of poverty constant between 2001 and 1994 while adjusting for changes in mean consumption, we must restrict the growth adjustment to those in the top 53% of the consumption distribution in 2001.

With the scenario so defined, we can consider what inequality would have been in 1994 if poverty did _not_ decline between 1994 and 2001. Under this scenario, the Gini coefficient for 1994 would have been 0.31, compared to 0.34 in 2001 and 0.33 in 1992. The difference between 0.31 and the values in both 1992 and 2001 is statistically significant.

It is possible but unlikely that inequality would have declined from 0.33 to 0.31 in just two years. This means that the scenario considered--that poverty did not decline at all 1995-2001—is unlikely to have taken place. This provides some further support for the hypothesis that poverty rates followed the inverse-U pattern shown in the simulations.<sup>12</sup>

# **5.9 Poverty Incidence and the Millennium Development Goals**

Finally, we consider how declines in poverty compare with declines that would be needed to meet the Millennium Development Goal target, interpreted here as a reduction by half from 1992 levels in both rural and urban poverty by 2015. Figure 13 shows the simulated poverty trajectories using the two-survey approach based on the stratum-level distributions of consumption.

> 11 Specifically, the national accounts data shown in Figure 2 imply that per capita GDP in 1994 was equivalent to 90.3 percent of per capita GDP in 2001. We assume, as earlier, that growth in per adult equivalent consumption was equal to growth in per capita GDP.

> 12 It is possible to construct scenarios where poverty did not decline 1995-2001 but inequality also remained unchanged. Specifically, this would be the case if growth took place only among middle-income households, while consumption remained constant for both the poor and the rich.