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

Andreas Bergh and Therese Nilsson ()

No 900, Working Paper Series from Research Institute of Industrial Economics

Abstract: We show theoretically that the poor can benefit from price changes induced by higher income inequality. As the number of poor in a society increases, or when the income difference between rich and poor increases, the market for products aimed towards the poor grows and such products become more profitable. As a result, there are circumstances where an increase in poverty associates with higher purchasing power of the poor. Using cross-country data at two points in time on the price of rice and Big Mac hamburgers, we confirm the relationship between inequality and purchasing power of the poor, and show that it is robust to several control variables and also to a first-difference specification.

Keywords: Inequality; Poverty; Prices; Purchasing power (search for similar items in EconPapers)
JEL-codes: D63 I30 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2012-01-24
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published as Bergh, Andreas and Therese Nilsson, 'When More Poor Means Less Poverty: On Income Inequality and Purchasing Power' in Southern Economic Journal, 2014, pages 232-246.

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Related works:
Journal Article: When More Poor Means Less Poverty: On Income Inequality and Purchasing Power (2014)
Working Paper: When More Poor Means Less Poverty: On Income Inequality and Purchasing Power (2012)
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