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When more poor means less poverty: On income inequality and purchasing power

Nilsson, Therese LU and Bergh, Andreas LU (2014) In Southern Economic Journal 81(1). p.232-246
Abstract
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... (More)
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. (Less)
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author
organization
publishing date
type
Contribution to journal
publication status
published
subject
in
Southern Economic Journal
volume
81
issue
1
pages
232 - 246
publisher
Southern Economic Association
external identifiers
  • wos:000338909800012
  • scopus:84904672744
ISSN
0038-4038
DOI
10.4284/0038-4038-2013.00
language
English
LU publication?
yes
id
7b359a29-39a3-4162-a84b-5239c82701fd (old id 3992332)
date added to LUP
2013-08-22 08:57:30
date last changed
2017-03-26 04:05:39
@article{7b359a29-39a3-4162-a84b-5239c82701fd,
  abstract     = {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.},
  author       = {Nilsson, Therese and Bergh, Andreas},
  issn         = {0038-4038},
  language     = {eng},
  number       = {1},
  pages        = {232--246},
  publisher    = {Southern Economic Association},
  series       = {Southern Economic Journal},
  title        = {When more poor means less poverty: On income inequality and purchasing power},
  url          = {http://dx.doi.org/10.4284/0038-4038-2013.00},
  volume       = {81},
  year         = {2014},
}