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

Ingvild Almås ()

No 473, LIS Working papers from LIS Cross-National Data Center in Luxembourg

Abstract: 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 real incomes. The bias is substantial and systematic: the poorer is 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 consequently real incomes, is measured by estimating Engel curves for food, which is an established method of measuring CPI bias.

JEL-codes: D1 E31 F01 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2008-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in CESifo Working Paper 3247, Category 3: Social Protection, 2010. http://www.cesifo-group.de/portal/pls/portal/docs/1/1185086.PDF.

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Persistent link: https://EconPapers.repec.org/RePEc:lis:liswps:473

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