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Whose inflation? A characterization of the CPI plutocratic gap

  • Eduardo Ley

Prais (1958) showed that the standard CPI computed by most statistical agencies can be interpreted as a weighted average of household price indexes, where the weight of each household is determined by its total expenditures. In this paper, we decompose the CPI plutocratic gap--i.e. the difference between the standard CPI and a democratically-weighted index, where each household has the same weight--as the product of expenditure inequality and the sample covariance between the elementary individual price indexes and a term which is a function of the expenditure elasticity of each good. This decomposition allows us to interpret variations in the size and sign of the plutocratic gap, and to discuss issues pertaining to group indexes. Copyright 2005, Oxford University Press.

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Article provided by Oxford University Press in its journal Oxford Economic Papers.

Volume (Year): 57 (2005)
Issue (Month): 4 (October)
Pages: 634-646

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Handle: RePEc:oup:oxecpp:v:57:y:2005:i:4:p:634-646
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  1. Jorgenson, Dale W & Slesnick, Daniel T, 1999. "Indexing Government Programs for Changes in the Cost of Living," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(2), pages 170-81, April.
  2. Frank A Cowell, 2006. "Inequality: Measurement," STICERD - Distributional Analysis Research Programme Papers 86, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  3. Yitzhaki, Shlomo, 1996. "On Using Linear Regressions in Welfare Economics," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(4), pages 478-86, October.
  4. Newbery, David M, 1995. "The Distributional Impact of Price Changes in Hungary and the United Kingdom," Economic Journal, Royal Economic Society, vol. 105(431), pages 847-63, July.
  5. Mario Izquierdo & Eduardo Ley & Javier Ruiz-Castillo, 2003. "The Plutocratic Gap in the CPI: Evidence from Spain," IMF Staff Papers, Palgrave Macmillan, vol. 50(1), pages 7.
  6. S. Nuri Erbas & Chera L. Sayers, 1998. "Is the United States CPI Biased Across Income and Age Groups?," IMF Working Papers 98/136, International Monetary Fund.
  7. Pollak, Robert A, 1980. "Group Cost-of-Living Indexes," American Economic Review, American Economic Association, vol. 70(2), pages 273-78, May.
  8. Angus Deaton, 1998. "Getting Prices Right: What Should Be Done?," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 37-46, Winter.
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