Scandinavian Working Papers in Economics
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Research Institute of Industrial Economics (IFN) Working Paper Series

No 900:
When More Poor Means Less Poverty: On Income Inequality and Purchasing Power

Andreas Bergh () and Therese Nilsson ()

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; (follow links to similar papers)

JEL-Codes: D63; I30; (follow links to similar papers)

14 pages, January 24, 2012

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This paper is published as:
Bergh, Andreas and Therese Nilsson, (2014), 'When More Poor Means Less Poverty: On Income Inequality and Purchasing Power', Southern Economic Journal, pages 232-246

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