 Rags and Riches: Relative Prices, Non-Homothetic Preferences, and Inequality in IndiaIngvild Almås and Anders Kjelsrud World Development, 2017, vol. 97, issue C, 102-121 Abstract: It is well known that consumption patterns change with income. Relative price changes would therefore affect rich and poor consumers differently. Yet, the standard price indices are not income-specific, and hence, they cannot account for such differences. In this paper, we study consumption inequality in India, while fully allowing for non-homotheticity. We show that the relative price changes during most of the period from 1993 to 2012 were pro-poor, in the sense that they favored the poor relative to the rich. As a result, we also find that conventional measures significantly overstate the rise in real consumption inequality during this period. The main lesson from our study is the importance of accounting for non-homotheticity when measuring inequality. The price index literature has, as of yet, paid relatively little attention to this. In our application, however, it turns out that the allowance for non-homotheticity is quantitatively much more important than much discussed adjustments, such as those for substitution in consumption. Keywords: India; Asia; cereal; consumption; income; distribution (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:wdevel:v:97:y:2017:i:c:p:102-121 DOI: 10.1016/j.worlddev.2017.04.001 Access Statistics for this article World Development is currently edited by O. T. Coomes More articles in World Development from Elsevier |
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