Consumption-Based Measures in Developing Nations

This chapter is concerned with deriving a welfare indicator for households that captures the economic dimensions of well-being. It focuses specifically on Brazil, and illustrates how, in this setting, to construct a welfare indicator based on consumption expenditures. In Brazil, detailed information on household consumption expenditures have been collected in the most recent Pesquisa de Or ç amentos Familiares (POF) of 2002/2003 fielded by the Instituto Brasileiro de Geografia e Estatística (IBGE). The chapter considers how best to construct a consumption aggregate from these data for the purpose of analyzing poverty and inequality. The discussion first considers the available building blocks for producing a consumption aggregate in the POF and reviews some of the principles and issues that can guide decisions as to whether and how specific items should be included in the aggregate. The development of the argument points toward a few limitations in the way certain components of consumption are collected and raises some concerns with respect to the observed presence of extreme values in the data set.