Scandinavian Working Papers in Economics
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Department of Economics, Norwegian School of Economics (NHH) Discussion Paper Series in Economics, Department of Economics, Norwegian School of Economics (NHH)

No 20/2012:
Global Income Inequality and Cost-of-Living Adjustment: The Geary–Allen World Accounts.

Ingvild Almås () and Erik Ø. Sørensen ()

Abstract: Standard ways of measuring real income are known to be inconsistent with consumer preferences. We provide preference-consistent estimates of real income, based on the income-specific price indices that are consistent with nonhomothetic preferences. We find that existing measures, such as Geary, GEKS and GAIA, create systematic biases: the poorer is a country, the more its income is overestimated by these measures. Consequently, international income inequality is underestimated by the same measures.

Keywords: Income Inequality; (follow links to similar papers)

JEL-Codes: D01; D30; E01; F01; (follow links to similar papers)

33 pages, November 1, 2012

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