EconPapers    
Economics at your fingertips  
 

Deflation by Expenditure Components: A Harmless Adjustment?

Nicola Amendola, Giulia Mancini, Silvia Redaelli () and Giovanni Vecchi
Additional contact information
Silvia Redaelli: World Bank

No 558, CEIS Research Paper from Tor Vergata University, CEIS

Abstract: We investigate the effect that seemingly minor features of the implementation of cost-of-living adjustments have on the distribution of household expenditures, by developing an analytical framework that is consistent with standard consumer theory, and mindful of data limitations faced by practitioners. The main result is at odds with common sense: even when multiple price indices are available (e.g. a food and a non-food CPI), it turns out that using a single price index (e.g. the total CPI), to adjust the consumption aggregate is recommended. The practice of adjusting subcomponents of consumption separately (food with a food index, non-food with a non-food index) can lead to a systematic bias in the welfare measure, and consequently in poverty and inequality measures. Using Iran’s 2019 Household Expenditures and Income Survey, we find that the bias manifests as a systematic underestimation of urban poverty, and overestimation of rural poverty.

Pages: 47 pages
Date: 2023-06-05, Revised 2023-06-05
References: Add references at CitEc
Citations:

Downloads: (external link)
https://ceistorvergata.it/RePEc/rpaper/RP558.pdf Main text (application/pdf)

Related works:
Journal Article: Deflation by Expenditure Components: A Harmless Adjustment? (2025) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rtv:ceisrp:558

Ordering information: This working paper can be ordered from
CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma
https://ceistorvergata.it

Access Statistics for this paper

More papers in CEIS Research Paper from Tor Vergata University, CEIS CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma. Contact information at EDIRC.
Bibliographic data for series maintained by Barbara Piazzi ().

 
Page updated 2025-03-23
Handle: RePEc:rtv:ceisrp:558