Working Papers, Department of Economics, Lund University
When More Poor Means Less Poverty: On Income Inequality and Purchasing Power
() 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: Income Inequality; Poverty; Purchasing Power; (follow links to similar papers)
JEL-Codes: D63; I30; (follow links to similar papers)
14 pages, January 9, 2012
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