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Prices, Inequality, And Poverty: Methodology And Indian Evidence

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  • ANKITA MISHRA
  • RANJAN RAY

Abstract

The contribution of this paper is both methodological and empirical. It proposes a methodology for evaluating the distributional implications of price movement for inequality and poverty measurement. The methodology is based on a distinction between inequalities in nominal expenditures, where the expenditures are either measured in nominal terms or a common price deflator is applied for all households, and that in real expenditures which takes into account the varying household preferences and differences in household composition in converting the nominal to real expenditures. Changes in relative prices will cause the inflation to affect different household groups differently depending on their household size and composition and their level of relative affluence. The empirical application to the Indian budget data sets shows the usefulness of the proposed procedures. The Indian empirical evidence is of particular interest since the period chosen (1993-2005) covered both first and second generation reforms in India. The results suggest that while rural poverty rates, in both nominal and real terms, fell sharply during this period, they were accompanied by an increase in both nominal and real expenditure inequality. In contrast, the urban poverty rates were mostly static or even increased over this period. Of further interest is the result that the price movement in both areas has been inequality reducing throughout much of this period. The study also contains a decomposition analysis of the movement in inequality and poverty rates. The decomposition is done both between family types and between social groups.

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Bibliographic Info

Article provided by International Association for Research in Income and Wealth in its journal Review of Income and Wealth.

Volume (Year): 57 (2011)
Issue (Month): 3 (09)
Pages: 428-448

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Handle: RePEc:bla:revinw:v:57:y:2011:i:3:p:428-448

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  1. Meenakshi, J. V. & Ray, Ranjan, 2002. "Impact of household size and family composition on poverty in rural India," Journal of Policy Modeling, Elsevier, vol. 24(6), pages 539-559, October.
  2. Aaron Nicholas & Ranjan Ray & Rebecca Valenzuela, 2008. "Evaluating The Distributional Implications Of Price Movements: Methodology, Application And Australian Evidence," Development Research Unit Working Paper Series 33/08, Monash University, Department of Economics.
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Cited by:
  1. Basu, Kaushik, 2013. "Shared prosperity and the mitigation of poverty : in practice and in precept," Policy Research Working Paper Series 6700, The World Bank.
  2. Ashima Goyal & Akash Kumar Baikar, 2014. "Psychology, cyclicality or social programs: Rural wage and inflation dynamics in India," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2014-014, Indira Gandhi Institute of Development Research, Mumbai, India.
  3. Manisha Chakrabarty & Amita Majumder & Ranjan Ray, 2012. "Preferences, Spatial Prices and Inequality," Development Research Unit Working Paper Series 52-12, Monash University, Department of Economics.
  4. Ankita Mishra & Ranjan Ray, 2010. "Multi Dimensional Deprivation in India during and after the Reforms: Do the Household Expenditure and the Family Health Surveys Present Consistent Evidence?," Development Research Unit Working Paper Series 36-10, Monash University, Department of Economics.
  5. Kaushik Basu & C Marks, 2011. "Understanding Inflation and Controlling It," Working Papers id:4481, eSocialSciences.
  6. Abhimanyu Dadu & Namrata Gulati, 2014. "Inequality, neighborhoods and variation in prices," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2014-001, Indira Gandhi Institute of Development Research, Mumbai, India.
  7. Chalasani, Satvika, 2012. "Understanding wealth-based inequalities in child health in India: A decomposition approach," Social Science & Medicine, Elsevier, vol. 75(12), pages 2160-2169.
  8. Sripad Motiram & Karthikeya Naraparaju, 2013. "Growth and Deprivation in India: What Does Recent Data Say?," Working Papers 287, ECINEQ, Society for the Study of Economic Inequality.

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