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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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File URL: http://www.buseco.monash.edu.au/eco/research/papers/2009/2709pricesinequalitymishraray.pdf
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Bibliographic Info

Paper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number 27-09.

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Length: 56 pages
Date of creation: Aug 2009
Date of revision:
Handle: RePEc:mos:moswps:2009-27

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Keywords: Real Expenditure Poverty; Inequality Decomposition; Scheduled Class; Equivalence Scales; Price Scaling;

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References

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  1. Aaron Nicholas & Ranjan Ray & Ma. Rebecca Valenzuela, 2010. "Evaluating the Distributional Implications of Price Movements: Methodology, Application and Australian Evidence," The Economic Record, The Economic Society of Australia, vol. 86(274), pages 352-366, 09.
  2. 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.
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Citations

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Cited by:
  1. 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.
  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. Basu, Kaushik, 2013. "Shared prosperity and the mitigation of poverty : in practice and in precept," Policy Research Working Paper Series 6700, The World Bank.
  4. 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.
  5. Ankita Mishra & Ranjan Ray, 2013. "Multi-Dimensional Deprivation in India During and After the Reforms: Do the Household Expenditure and the Family Health Surveys Present Consistent Evidence?," Social Indicators Research, Springer, vol. 110(2), pages 791-818, January.
  6. 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.
  7. 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.
  8. Kaushik Basu & C Marks, 2011. "Understanding Inflation and Controlling It," Working Papers id:4481, eSocialSciences.

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