Reassessing poverty measurement in Europe using a cash-flow-informed residual-income framework

We develop a cash-flow-informed residual-income (RI) framework that subtracts non-discretionary expenditures (housing costs, loan payments, transportation) from disposable income (DI) to reassess poverty in Europe. Using EU-SILC 2020 microdata and Eurostat methodology, we estimate and compare RI- and DI-based poverty rates. The RI results show higher poverty prevalence and stronger alignment with subjective hardship. Poverty-status transitions and subgroup analyses indicate mortgage holders, renters, and transport-dependent households are RI-poor but not DI-poor. Results further imply that deducting major fixed costs alters assumed household economies of scale. RI measures offer a nuanced view of economic hardship and can inform targeted policies.