IDEAS home Printed from https://ideas.repec.org/p/wbk/wbrwps/10426.html
   My bibliography  Save this paper

Price Adjustments and Poverty Measurement

Author

Listed:
  • Amendola,Nicola
  • Mancini,Giulia
  • Redaelli,Silvia
  • Vecchi,Giovanni

Abstract

Measuring poverty entails making interpersonal welfare comparisons, that should account fordifferences in prices faced by households, both over time and across space. This paper investigates the impact ofseemingly minor differences in the practical implementation of price adjustments, by developing an analytical frameworkthat is consistent with standard consumer theory and mindful of the data limitations faced by practitioners. The mainresult is at odds with common sense: even when multiple price indexes are available, say a food and a nonfoodConsumer Price Index, it turns out that using a single price index, the total Consumer Price Index, to adjust theconsumption aggregate is recommended. The practice of adjusting the components of the consumption aggregateseparately, using matching deflators—food expenditure with the food index and nonfood expenditure with the nonfoodindex—can lead to a systematic bias in the welfare measure, and consequently in poverty and inequality measures. Thedirection of the bias can be easily predicted based on the price level and household consumption patterns. On theinterplay between spatial and temporal deflation, the findings show that temporal deflation should be carried outbefore implementing adjustments to spatial cost-of-living differences. The paper illustrates these findings using theIslamic Republic of Iran’s 2019 Household Income and Expenditure survey: the bias in the headcount poverty ratedue to incorrect deflation is substantive (5–10 percent for estimates at the national level, 15–20 percent in urban andrural areas, and more than 30 percent for district-level headcount rates). Higher-order Foster-Greer-Thorbecke poverty measures are even more affected.

Suggested Citation

  • Amendola,Nicola & Mancini,Giulia & Redaelli,Silvia & Vecchi,Giovanni, 2023. "Price Adjustments and Poverty Measurement," Policy Research Working Paper Series 10426, The World Bank.
  • Handle: RePEc:wbk:wbrwps:10426
    as

    Download full text from publisher

    File URL: http://documents.worldbank.org/curated/en/099311104272341601/pdf/IDU06af3b51809e4e049840b03f03e26a6c1f357.pdf
    Download Restriction: no
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:10426. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Roula I. Yazigi (email available below). General contact details of provider: https://edirc.repec.org/data/dvewbus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.