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

By Ingvild Almås. Social Science Research Network, 2012

133 citations recorded by the source corpus.

Purchasing power adjusted incomes applied in cross-country comparisons are measured with bias. In this paper, we estimate the purchasing power parity (PPP) bias in Penn World Table incomes and provide 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. Our 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, which is an established method of measuring CPI bias.

Subfields: Economics and Econometrics, Sociology and Political Science

View Paper: https://www.semanticscholar.org/paper/04057d8ae4670cedf4638e1681cd089a0c2262b1

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

In Sociology and Political Science

Citations in the corpus

The Global Distribution of Income (2014, background): “Alma˚s (2012) also found that PWT PPPs underestimate global inequality when accounting for both substitution bias and differences in the quality of goods across countries.”
Are Poor Cities Cheap for Everyone? Non-Homotheticity and the Cost of Living Across U.S. Cities (2013, methodology): “The origins of this result are Anderson et al. (1987), whose proof is extended to models that account for product quality in Verhoogen (2008).”
The Distributional Consequences of Large Devaluations (2017, background): “For recent evidence using household surveys from multiple countries, see Almås [2012].”