Scandinavian Working Papers in Economics

Discussion Paper Series in Economics,
Norwegian School of Economics, Department of Economics

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

Ingvild Almås () and Erik Ø. Sørensen ()
Additional contact information
Ingvild Almås: Dept. of Economics, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Economics, Helleveien 30, N-5045 Bergen, Norway
Erik Ø. Sørensen: Dept. of Economics, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Economics, Helleveien 30, N-5045 Bergen, Norway

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

JEL-codes: D01; D30; E01; F01

33 pages, November 1, 2012

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