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  4. April 2012
  5. International Income Inequality: Measuring PPP Bias by Estimating Engel Curves for Food

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

International Income Inequality: Measuring PPP Bias by Estimating Engel Curves for Food

  • Ingvild Almås
American Economic Review
vol. 102, no. 2, April 2012
(pp. 1093–1117)
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Abstract

Purchasing power-adjusted incomes applied in cross-country comparisons are measured with bias. This paper estimates the purchasing power parity (PPP) bias in Penn World Table incomes and provides corrected incomes. The bias is substantial and systematic: the poorer a country, the more its income tends to be overestimated. Consequently, international income inequality is substantially underestimated. The methodological contribution is to exploit the analogies between PPP bias and the bias in consumer price index (CPI) numbers. The PPP bias and subsequent corrected incomes are measured by estimating Engel curves for food, an established method of measuring CPI bias. (JEL C43, D31, E31, O11, O12)

Citation

Almås, Ingvild. 2012. "International Income Inequality: Measuring PPP Bias by Estimating Engel Curves for Food." American Economic Review, 102 (2): 1093–1117. DOI: 10.1257/aer.102.2.1093

Additional Materials

JEL Classification

  • C43 Index Numbers and Aggregation; Leading indicators
  • D31 Personal Income, Wealth, and Their Distributions
  • E31 Price Level; Inflation; Deflation
  • O11 Macroeconomic Analyses of Economic Development
  • O12 Microeconomic Analyses of Economic Development