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Global Income Inequality and Cost-of-Living Adjustment: The Geary–Allen World Accounts

Author

Listed:
  • Almås, Ingvild

    () (Dept. of Economics, Norwegian School of Economics and Business Administration)

  • Sørensen, Erik Ø.

    () (Dept. of Economics, Norwegian School of Economics and Business Administration)

Abstract

Standard ways of measuring real income are known to be inconsistent with consumer preferences. We provide preference-consistent estimates of real income, based on the income-specific price indices that are consistent with nonhomothetic preferences. We find that existing measures, such as Geary, GEKS and GAIA, create systematic biases: the poorer is a country, the more its income is overestimated by these measures. Consequently, international income inequality is underestimated by the same measures.

Suggested Citation

  • Almås, Ingvild & Sørensen, Erik Ø., 2012. "Global Income Inequality and Cost-of-Living Adjustment: The Geary–Allen World Accounts," Discussion Paper Series in Economics 20/2012, Norwegian School of Economics, Department of Economics.
  • Handle: RePEc:hhs:nhheco:2012_020
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    References listed on IDEAS

    as
    1. Bettina Aten & Marshall Reinsdorf, 2010. "Comparing the Consistency of Price Parities for Regions of the U.S. in an Economic Approach Framework," BEA Papers 0098, Bureau of Economic Analysis.
    2. Hill, Robert J., 2000. "Measuring substitution bias in international comparisons based on additive purchasing power parity methods," European Economic Review, Elsevier, vol. 44(1), pages 145-162, January.
    3. Angus Deaton & Olivier Dupriez, 2011. "Purchasing Power Parity Exchange Rates for the Global Poor," American Economic Journal: Applied Economics, American Economic Association, vol. 3(2), pages 137-166, April.
    4. Blundell, Richard & Robin, Jean Marc, 1999. "Estimation in Large and Disaggregated Demand Systems: An Estimator for Conditionally Linear Systems," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(3), pages 209-232, May-June.
    5. Cooper, Russel J & McLaren, Keith R, 1996. "A System of Demand Equations Satisfying Effectively Global Regularity Conditions," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 359-364, May.
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    8. Angus Deaton & Alan Heston, 2010. "Understanding PPPs and PPP-Based National Accounts," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(4), pages 1-35, October.
    9. W. Erwin Diewert, 1999. "Axiomatic and Economic Approaches to International Comparisons," NBER Chapters,in: International and Interarea Comparisons of Income, Output, and Prices, pages 13-107 National Bureau of Economic Research, Inc.
    10. Feenstra, Robert C. & Ma, Hong & Rao, D. S. Prasada, 2009. "Consistent Comparisons Of Real Incomes Across Time And Space," Macroeconomic Dynamics, Cambridge University Press, vol. 13(S2), pages 169-193, September.
    11. Steve Dowrick & Muhammad Akmal, 2005. "Contradictory Trends In Global Income Inequality: A Tale Of Two Biases," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 51(2), pages 201-229, June.
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    More about this item

    Keywords

    Income Inequality;

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D30 - Microeconomics - - Distribution - - - General
    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • F01 - International Economics - - General - - - Global Outlook

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