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Poverty line definitions in use often lack a solid scientific foundation. This paper proposes to exploit data on income satisfaction to construct an evidence-based poverty line. The poverty line is identified by using its assumed unique property to explain income dissatisfaction best among all dichotomizations of income. To this end, several model settings are considered including linear and nonlinear approaches both exploiting panel information. Applying the method to data from the German Socio-Economic Panel yields a temporally stable poverty line similar to the definition provided by the Statistical Office of the European Commission. Using data from the European Community Household Panel, we present further evidence for satisfaction-based poverty lines across Europe and investigate their cross-country differences. The appropriateness of focusing on discrete poverty lines is also investigated.
Household income, poverty line, income satisfaction