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Taking Prices Seriously in the Measurement of Inequality

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  • Pendakur, K.

Abstract

In the measurement of inequality, adjustments for differences across households in their demographic composition and in the price regimes they face are usually very simple. Often, nominal income is adjusted with an income-independent price deflator and a price-independent equivalence scale. I show that using more flexible income-dependent price deflators and price-dependent equivalence scales affects the level of, and trend in, measured consumption inequality in Canada over 1978-1996. Whereas standard methods show a large increase in inequality over the eraly 1980s and a decrease over the mid 1990s, more flexible methods show a smaller increase over the early 1980s and no decrease over the mid 1990s.

Suggested Citation

  • Pendakur, K., 1999. "Taking Prices Seriously in the Measurement of Inequality," Discussion Papers dp99-7, Department of Economics, Simon Fraser University.
  • Handle: RePEc:sfu:sfudps:dp99-7
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    Cited by:

    1. Pendakur, Krishna & Scholz, Michael & Sperlich, Stefan, 2010. "Semiparametric indirect utility and consumer demand," Computational Statistics & Data Analysis, Elsevier, vol. 54(11), pages 2763-2775, November.
    2. Andreas Bergh & Therese Nilsson, 2014. "When More Poor Means Less Poverty: On Income Inequality and Purchasing Power," Southern Economic Journal, Southern Economic Association, vol. 81(1), pages 232-246, July.
    3. repec:eee:wdevel:v:97:y:2017:i:c:p:102-121 is not listed on IDEAS
    4. Krishna Pendakur & Stefan Sperlich, 2010. "Semiparametric estimation of consumer demand systems in real expenditure," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(3), pages 420-457.
    5. de Ree, Joppe & Alessie, Rob & Pradhan, Menno, 2013. "The price and utility dependence of equivalence scales: Evidence from Indonesia," Journal of Public Economics, Elsevier, vol. 97(C), pages 272-281.
    6. David Donaldson & Krishna Pendakur, 2012. "Index-number tests and the common-scaling social cost-of-living index," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 38(3), pages 407-429, March.
    7. Heshmati, Almas, 2004. "Data Issues and Databases Used in Analysis of Growth, Poverty and Economic Inequality," IZA Discussion Papers 1263, Institute for the Study of Labor (IZA).
    8. Lyssiotou, Panayiota, 2008. "Comparisons of poverty across periods: Significance of distributional effects of prices," Economics Letters, Elsevier, vol. 99(1), pages 14-17, April.
    9. Paul Blacklow & Aaron Nicholas & Ranjan Ray, 2010. "Demographic Demand Systems With Application To Equivalence Scales Estimation And Inequality Analysis: The Australian Evidence," Australian Economic Papers, Wiley Blackwell, vol. 49(3), pages 161-179, September.
    10. Prize Committee, Nobel, 2015. "Consumption, Poverty, and Welfare," Nobel Prize in Economics documents 2015-2, Nobel Prize Committee.
    11. Lori J. Curtis & JoAnn Kingston-Riechers, 2010. "Implications of the Introduction of the Goods and Services Tax for Families in Canada," Canadian Public Policy, University of Toronto Press, vol. 36(4), pages 503-520, December.
    12. Dudel, Christian & Garbuszus, Jan Marvin & Schmied, Julian, 2017. "Assessing differences in household needs: A comparison of approaches for the estimation of equivalence scales using German expenditure data," Ruhr Economic Papers 723, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    13. Manisha Chakrabarty & Amita Majumder & Ranjan Ray, 2015. "Preferences, Spatial Prices and Inequality," Journal of Development Studies, Taylor & Francis Journals, vol. 51(11), pages 1488-1501, November.
    14. Ingvild Almås & Anders Kjelsrud & Rohini Somanathan, 2013. "A Behaviour-based Approach to the Estimation of Poverty in India," CESifo Working Paper Series 4122, CESifo Group Munich.
    15. repec:bla:ecorec:v:93:y:2017:i:301:p:314-332 is not listed on IDEAS
    16. Arthur Lewbel & Krishna Pendakur, 2009. "Tricks with Hicks: The EASI Demand System," American Economic Review, American Economic Association, vol. 99(3), pages 827-863, June.
    17. Clements, Kenneth W. & Gao, Grace, 2012. "Quality, quantity, spending and prices," European Economic Review, Elsevier, vol. 56(7), pages 1376-1391.
    18. Dette, Holger & Hoderlein, Stefan & Neumeyer, Natalie, 2016. "Testing multivariate economic restrictions using quantiles: The example of Slutsky negative semidefiniteness," Journal of Econometrics, Elsevier, vol. 191(1), pages 129-144.
    19. Christian Dudel & Jan Marvin Garbuszus & Notburga Ott & Martin Werding, 2015. "Income Dependent Equivalence Scales, Inequality, and Poverty," CESifo Working Paper Series 5568, CESifo Group Munich.
    20. 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.
    21. 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.
    22. Bosmans, Kristof & Decancq, Koen & Ooghe, Erwin, 2015. "What do normative indices of multidimensional inequality really measure?," Journal of Public Economics, Elsevier, vol. 130(C), pages 94-104.
    23. Donaldson, David & Pendakur, Krishna, 2004. "Equivalent-expenditure functions and expenditure-dependent equivalence scales," Journal of Public Economics, Elsevier, vol. 88(1-2), pages 175-208, January.

    More about this item

    Keywords

    INEQUALITY ; PRICES ; MEASURING INSTRUMENTS;

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory

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