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On Plutocratic and Democratic CPIs

Author

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  • Eduardo Ley

    (IMF Institute)

Abstract

Prais (1958) showed that the standard CPI computed by most statistical agencies can be interpreted as a plutocratic weighted average of household price indexes because the weight of each household in the official CPI is determined by its total expenditures. In this paper, we decompose the difference between the standard CPI and a democratically weighted index as the product of a measure of income inequality and the sample covariance between the elementary individual price indexes and a parameter which is a function of the income elasticity of each good.

Suggested Citation

  • Eduardo Ley, 2002. "On Plutocratic and Democratic CPIs," Economics Bulletin, AccessEcon, vol. 4(3), pages 1-5.
  • Handle: RePEc:ebl:ecbull:eb-01d60003
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    References listed on IDEAS

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    3. Timothy Smeeding & Gunther Schmaus & Brigitte Buhmann & Lee Rainwater, 1988. "Equivalence Scales, Well-Being, Inequality and Poverty: Sensitivity Estimates Across Ten Countries Using the LIS Database," LIS Working papers 17, LIS Cross-National Data Center in Luxembourg.
    4. Mr. S. Nuri Erbas & Chera L. Sayers, 1998. "Is the United States CPI Biased Across Income and Age Groups?," IMF Working Papers 1998/136, International Monetary Fund.
    5. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762, November.
    6. Javier Ruiz-Castillo & Eduardo Ley & Mario Izquierdo, "undated". "The plutocratic bias in the CPI: Evidence from Spain," Studies on the Spanish Economy 60, FEDEA.
    7. Angus Deaton, 1998. "Getting Prices Right: What Should Be Done?," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 37-46, Winter.
    8. Buhmann, Brigitte, et al, 1988. "Equivalence Scales, Well-Being, Inequality, and Poverty: Sensitivity Estimates across Ten Countries Using the Luxembourg Income Study (LIS) Database," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 34(2), pages 115-142, June.
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    Cited by:

    1. Andrea Bentancor & Pablo Pincheira, 2014. "The Long-Term Divergence Between Your CPI and Mine, The Case of Chile," Working Papers Central Bank of Chile 736, Central Bank of Chile.
    2. Thomas F. Crossley & Krishna Pendakur, 2006. "The Social Cost-of-Living: Welfare Foundations and Estimation," Quantitative Studies in Economics and Population Research Reports 407, McMaster University.
    3. Liberati, Paolo, 2012. "Democratic, Plutocratic and Social Weights in Price Indexes," MPRA Paper 43978, University Library of Munich, Germany.
    4. repec:aru:wpaper:201301 is not listed on IDEAS

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    JEL classification:

    • D6 - Microeconomics - - Welfare Economics
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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