2014

When More Poor Means Less Poverty: On Income Inequality and Purchasing Power

Reprint No. 2014:36

Author(s): Andreas Bergh and Therese NilssonYear: 2014 Title: Southern Economic Journal Volume (No.): 81 (1) Pages: 232–246
Online article (restrictions may apply)
Preliminary version


We show theoretically that the poor can benefit from price changes induced by higher income inequality. As the number of poor increases, the market for products aimed toward the poor grows, and such products become more profitable. As a result, there are circumstances where an increase in income inequality associates with higher purchasing power of the poor. Using cross-country data on the price of one kilogram of rice and the price of a Big Mac hamburger, we confirm a negative association between income inequality and the price of inferior goods, robust to the inclusion of a large set of control variables. Results are also robust to a first difference specification and to a two-stage instrumental variables approach. Examining economic well-being, it is thus important to analyze not only the incomes of households, but also the prices of the products and services that they buy.


Reference:
Bergh, Andreas and Therese Nilsson (2014), "When More Poor Means Less Poverty: On Income Inequality and Purchasing Power". Southern Economic Journal 81(1), 232–246.

Andreas Bergh

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Mob: 070 779 0734
andreas.bergh@ifn.se

Therese Nilsson

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Ph: +46 46 222 4643
Mob: +46 73 396 7919
therese.nilsson@nek.l...

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