IDEAS home Printed from https://ideas.repec.org/p/hhs/lunewp/2012_002.html
   My bibliography  Save this paper

When More Poor Means Less Poverty: On Income Inequality and Purchasing Power

Author

Listed:

Abstract

We show theoretically that the poor can benefit from price changes induced by higher income inequality. As the number of poor in a society increases, or when the income difference between rich and poor increases, the market for products aimed towards the poor grows and such products become more profitable. As a result, there are circumstances where an increase in poverty associates with higher purchasing power of the poor. Using cross-country data at two points in time on the price of rice and Big Mac hamburgers, we confirm the relationship between inequality and purchasing power of the poor, and show that it is robust to several control variables and also to a first-difference specification.

Suggested Citation

  • Bergh, Andreas & Nilsson, Therese, 2012. "When More Poor Means Less Poverty: On Income Inequality and Purchasing Power," Working Papers 2012:2, Lund University, Department of Economics.
    • Handle: RePEc:hhs:lunewp:2012_002
    as

    Download full text from publisher

    File URL: http://project.nek.lu.se/publications/workpap/papers/WP12_2.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Timothy Smeeding, 1997. "American Income Inequality in a Cross-National Perspective: Why Are We So Different?," LIS Working papers 157, LIS Cross-National Data Center in Luxembourg.
    2. Andrei Shleifer & Florencio Lopez-de-Silanes & Rafael La Porta, 2008. "The Economic Consequences of Legal Origins," Journal of Economic Literature, American Economic Association, vol. 46(2), pages 285-332, June.
    3. Andreas Bergh & Therese Nilsson, 2014. "When More Poor Means Less Poverty: On Income Inequality and Purchasing Power," Southern Economic Journal, John Wiley & Sons, vol. 81(1), pages 232-246, July.
    4. Pendakur, Krishna, 2002. "Taking prices seriously in the measurement of inequality," Journal of Public Economics, Elsevier, vol. 86(1), pages 47-69, October.
    5. Slesnick,Daniel T., 2001. "Consumption and Social Welfare," Cambridge Books, Cambridge University Press, number 9780521497206.
    6. Daron Acemoglu & Joshua Linn, 2004. "Market Size in Innovation: Theory and Evidence from the Pharmaceutical Industry," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(3), pages 1049-1090.
    7. Treisman, Daniel, 2000. "The causes of corruption: a cross-national study," Journal of Public Economics, Elsevier, vol. 76(3), pages 399-457, June.
    8. Deaton, Angus & Paxson, Christina, 1994. "Intertemporal Choice and Inequality," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 437-467, June.
    9. Dirk Krueger & Fabrizio Perri, 2006. "Does Income Inequality Lead to Consumption Inequality? Evidence and Theory -super-1," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 73(1), pages 163-193.
    10. Lind, Jo Thori, 2007. "Fractionalization and the size of government," Journal of Public Economics, Elsevier, vol. 91(1-2), pages 51-76, February.
    11. Shoichi Ito & E. Wesley F. Peterson & Warren R. Grant, 1989. "Rice in Asia: Is It Becoming an Inferior Good?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 71(1), pages 32-42.
    12. Oguzhan C. Dincer & Peter J. Lambert, 2012. "Taking care of your own: ethnic and religious heterogeneity and income inequality," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 39(3), pages 290-313, July.
    13. Dave D. Weatherspoon & Thomas Reardon, 2003. "The Rise of Supermarkets in Africa: Implications for Agrifood Systems and the Rural Poor," Development Policy Review, Overseas Development Institute, vol. 21, pages 333-355, May.
    14. Ferreira, Francisco H.G. & Ravallion, Martin, 2008. "Global poverty and inequality : a review of the evidence," Policy Research Working Paper Series 4623, The World Bank.
    15. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-326, June.
    16. World Bank, 2010. "World Development Indicators 2010," World Bank Publications - Books, The World Bank Group, number 4373, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Andreas Bergh & Therese Nilsson, 2014. "When More Poor Means Less Poverty: On Income Inequality and Purchasing Power," Southern Economic Journal, John Wiley & Sons, vol. 81(1), pages 232-246, July.
    2. 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.
    3. Namrata Gulati & Abhimanyu Dadu, 2014. "Inequality, Neighbourhoods and Variation in Prices," Economics Bulletin, AccessEcon, vol. 34(3), pages 1463-1484.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Erik Lindqvist & Robert Östling, 2013. "Identity and redistribution," Public Choice, Springer, vol. 155(3), pages 469-491, June.
    2. Jonathan Fisher & David S. Johnson & Timothy M. Smeeding, 2015. "Inequality of Income and Consumption in the U.S.: Measuring the Trends in Inequality from 1984 to 2011 for the Same Individuals," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 61(4), pages 630-650, December.
    3. Jonathan Heathcote & Kjetil Storesletten & Giovanni L. Violante, 2014. "Consumption and Labor Supply with Partial Insurance: An Analytical Framework," American Economic Review, American Economic Association, vol. 104(7), pages 2075-2126, July.
    4. Orazio Attanasio & Erik Hurst & Luigi Pistaferri, 2012. "The Evolution of Income, Consumption, and Leisure Inequality in The US, 1980-2010," NBER Working Papers 17982, National Bureau of Economic Research, Inc.
    5. Orazio Attanasio & Erik Hurst & Luigi Pistaferri, 2014. "The Evolution of Income, Consumption, and Leisure Inequality in the United States, 1980–2010," NBER Chapters, in: Improving the Measurement of Consumer Expenditures, pages 100-140, National Bureau of Economic Research, Inc.
    6. Mark Aguiar & Mark Bils, 2015. "Has Consumption Inequality Mirrored Income Inequality?," American Economic Review, American Economic Association, vol. 105(9), pages 2725-2756, September.
    7. Jonathan Heathcote & Fabrizio Perri & Giovanni L. Violante, 2010. "Unequal We Stand: An Empirical Analysis of Economic Inequality in the United States: 1967-2006," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(1), pages 15-51, January.
    8. Christian Lessmann, 2012. "Regional Inequality and Decentralization: An Empirical Analysis," Environment and Planning A, , vol. 44(6), pages 1363-1388, June.
    9. Prize Committee, Nobel, 2015. "Consumption, Poverty, and Welfare," Nobel Prize in Economics documents 2015-2, Nobel Prize Committee.
    10. Zhao, Da & Wu, Tianhao & He, Qiwei, 2017. "Consumption inequality and its evolution in urban China," China Economic Review, Elsevier, vol. 46(C), pages 208-228.
    11. Mohamed Ismail Sabry, 2017. "Informal state–business connections, institutions, and economic growth," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 34(2), pages 233-258, August.
    12. Greg Kaplan, 2012. "Inequality and the life cycle," Quantitative Economics, Econometric Society, vol. 3(3), pages 471-525, November.
    13. Till Treeck, 2014. "Did Inequality Cause The U.S. Financial Crisis?," Journal of Economic Surveys, Wiley Blackwell, vol. 28(3), pages 421-448, July.
    14. Clément Bellet, 2017. "Essays on Inequality, Social Preferences and Consumer Behavior," Sciences Po publications info:hdl:2441/vbu6kd1s68o, Sciences Po.
    15. Gaoussou Diarra & Sébastien Marchand, 2011. "Environmental Compliance, Corruption and Governance: Theory and Evidence on Forest Stock in Developing Countries," Working Papers halshs-00557677, HAL.
    16. Shahateet, Mohammed & Al-Tayyeb, Saud, 2007. "Regional consumption inequalities in Jordan: Empirical study," MPRA Paper 57400, University Library of Munich, Germany.
    17. Lichner, Ivan & Lyócsa, Štefan & Výrostová, Eva, 2022. "Nominal and discretionary household income convergence: The effect of a crisis in a small open economy," Structural Change and Economic Dynamics, Elsevier, vol. 61(C), pages 18-31.
    18. Arpita Chatterjee & James Morley & Aarti Singh, 2021. "Estimating household consumption insurance," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 36(5), pages 628-635, August.
    19. Gueorguiev, Dimitar & Malesky, Edmund, 2012. "Foreign investment and bribery: A firm-level analysis of corruption in Vietnam," Journal of Asian Economics, Elsevier, vol. 23(2), pages 111-129.
    20. Alvaro Aguirre, 2017. "Contracting Institutions and Economic Growth," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 24, pages 192-217, March.

    More about this item

    Keywords

    Income Inequality; Poverty; Purchasing Power;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hhs:lunewp:2012_002. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Prakriti Thami (email available below). General contact details of provider: https://edirc.repec.org/data/delunse.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.