# Poverty and Inequality Indicators

The poverty measures, commonly known as the Foster-Greer-Thorbecke (FGT) family of poverty, including the poverty headcount index or P0 (FGT0), poverty gap index or P1 (FGT1), and poverty severity index or P2 (FGT2). The inequality measure calculated is the Gini Index. In brief, while FGT0 measures how widespread poverty is, FGT1 measures how poor the poor are, FGT2 gives an indication of how severe poverty is, and the Gini Index measures how equal the distribution of expenditure is.

• Poverty Rate (FGT0)
An index to calculate the proportion of people living below the poverty line. The formula used to calculate this index is based on the number of people with a per capita expenditure below the poverty line as a proportion of the total population. A poverty rate of 25 percent indicates that 25 people are categorized as poor, among a population of 100.
• Poverty Gap (FGT1)
An index to measure the expenditure discrepancy of poor people towards the poverty line. The formula used to calculate this index is based on the calculation of the difference between per capita expenditure and the poverty line as a proportion of the poverty line times the total population. A poverty gap of 10 percent means that, on average, the poor have 10 percent deprivation below the poverty line. This could also be an indication that it would cost an average of 10 percent of the poverty line per poor person in order to lift them out of poverty through selective transfers.
• Poverty Severity (FGT2)
An index to describe the distribution of expenditure among poor people. The formula used to calculate this index is based on a calculation of the squared difference between per capita expenditure and the poverty line as a proportion of the squared poverty line times the total population. A poverty severity of 5 percent means that the poorest people are 5 percent worse off compared to poor people on average. This could also be an indication that the poorest people have to mobilize financial resources of 5 percent more of the poverty line per poor person than is required for the average poor.
• Gini Index
An index to measure the degree of inequality based on the distribution of expenditure among the population. The formula used to calculate this index is based on the ratio of an area between the Lorentz curve and the 45 degree diagonal as a proportion of the area below the diagonal. The Lorentz curve is a graphical representation of the real expenditure distribution, while the straight diagonal line represents the perfect equality of expenditure distribution. The Gini Index is a number between 0 and 1, where 0 corresponds with perfect equality and 1 corresponds with perfect inequality.

SMERU relied on two poverty lines in calculating the poverty indicators. Firstly, it used the official 2015 Indonesian provincial urban/rural poverty lines published by Statistics Indonesia. Secondly, the poverty indicators are also calculated based on the provincial urban/rural specific internationally comparable poverty lines. In this term, the poverty lines are referenced against the US\$3.1 (PPP) per person per day poverty line, with the PPP factors being taken from the World Bank’s 2011 International Comparison Project and adjusted for inflation using the annual Consumer Price Index for the poor (CPI poor) to derive a rupiah value that corresponds to the 2015 price levels.