Poverty And Inequality Under Income And Price Dispersions
Many policies simultaneously affect the distribution of prices and incomes in the economy. Moreover, a bias may occur when there is a stochastic relationship between prices and incomes and this relationship is being ignored. It is therefore important to dispose of an analytical framework for welfare analysis that could account for changes in this joint distribution. How can the joint influences of price and income distributions on poverty and inequality indicators be analysed? We offer a method to deal with this problem by using parametric formulae of poverty and inequality measures. We propose statistical indicators for the levels, variabilities and a statistical link of price indices and nominal living standards. These indicators are consistent with an approximation of the problem based on a bivariate lognormal distribution of price indices and nominal living standards. Our analysis provides hints about the social welfare impact of economic shocks or policies affecting levels, variabilities and correlation of prices and incomes. Intuitive insights are obtained, while using arithmetic means and variances instead does not lead to illuminating results. The role of price and income variabilities for poverty and inequality is more complex than generally expected, with the possibility of several variation regimes. Empirical investigation of these statistics would guide social policies.
|Date of creation:||Aug 2004|
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