IDEAS home Printed from https://ideas.repec.org/a/eee/ecolet/v76y2002i1p137-144.html
   My bibliography  Save this article

Distributional aspects of the quality change bias in the CPI: evidence from Spain

Author

Listed:
  • Ruiz-Castillo, Javier
  • Ley, Eduardo
  • Izquierdo, Mario

Abstract

In this paper we address the issue of the distributional consequences of the quality change bias (QCB) in the CPI. In particular, we assess the conjecture raised by some critics of the Boskin commission report that new products and goods affected by quality effects are disproportionately consumed by the rich. Our analysis begins with the observation that the CPI is a weighted mean of household-specific statistical price indexes, with weights proportional to household total expenditures. Then, we suggest a simple but powerful procedure to evaluate the distributional consequences of eliminating the QCB by examining its impact on two scalars: (1) the CPI plutocratic bias, and (2) the change in money inequality after compensating every household for her individual inflation rate. The empirical analysis combines the detailed information pertaining the size of the QCB for the U.S. with household-specific price indexes for Spain in 1973-74, 1980-81, and 1990-91. The results show that, as conjectured, the quality bias especially affects the richer households.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Ruiz-Castillo, Javier & Ley, Eduardo & Izquierdo, Mario, 2002. "Distributional aspects of the quality change bias in the CPI: evidence from Spain," Economics Letters, Elsevier, vol. 76(1), pages 137-144, June.
    • Handle: RePEc:eee:ecolet:v:76:y:2002:i:1:p:137-144
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0165-1765(02)00020-4
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Brent R. Moulton & Karin E. Moses, 1997. "Addressing the Quality Change Issue in the Consumer Price Index," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1), pages 305-366.
    2. J. Ruiz-Castillo & E. Ley & M. Izquierdo, 2002. "The Laspeyres bias in the Spanish consumer price index," Applied Economics, Taylor & Francis Journals, vol. 34(18), pages 2267-2276.
    3. Timothy Smeeding & Gunther Schmaus & Brigitte Buhmann & Lee Rainwater, 1988. "Equivalence Scales, Well-Being, Inequality and Poverty: Sensitivity Estimates Across Ten Countries Using the LIS Database," LIS Working papers 17, LIS Cross-National Data Center in Luxembourg.
    4. Shorrocks, Anthony F, 1984. "Inequality Decomposition by Population Subgroups," Econometrica, Econometric Society, vol. 52(6), pages 1369-1385, November.
    5. Gordon, Robert J & Griliches, Zvi, 1997. "Quality Change and New Products," American Economic Review, American Economic Association, vol. 87(2), pages 84-88, May.
    6. Thesia I. Garner & Javier Ruiz-Castillo & Mercedes Sastre, 2003. "The Influence of Demographics and Household-Specific Price Indices on Consumption-Based Inequality and Welfare: A Comparison of Spain and the United States," Southern Economic Journal, John Wiley & Sons, vol. 70(1), pages 22-48, July.
    7. Javier Ruiz-Castillo & Eduardo Ley & Mario Izquierdo, "undated". "The plutocratic bias in the CPI: Evidence from Spain," Studies on the Spanish Economy 60, FEDEA.
    8. Brigitte Buhmann & Lee Rainwater & Guenther Schmaus & Timothy M. Smeeding, 1988. "Equivalence Scales, Well‐Being, Inequality, And Poverty: Sensitivity Estimates Across Ten Countries Using The Luxembourg Income Study (Lis) Database," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 34(2), pages 115-142, June.
    9. Michael J. Boskin, 1998. "Consumer Prices, the Consumer Price Index, and the Cost of Living," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 3-26, Winter.
    10. Angus Deaton, 1998. "Getting Prices Right: What Should Be Done?," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 37-46, Winter.
    11. Coulter, Fiona A E & Cowell, Frank A & Jenkins, Stephen P, 1992. "Equivalence Scale Relativities and the Extent of Inequality and Poverty," Economic Journal, Royal Economic Society, vol. 102(414), pages 1067-1082, September.
    12. repec:bla:revinw:v:34:y:1988:i:2:p:115-42 is not listed on IDEAS
    13. Theil, Henri, 1979. "Variations across households in the rate of inflation," Economics Letters, Elsevier, vol. 4(1), pages 37-39.
    14. Mills, Jeffrey A & Zandvakili, Sourushe, 1997. "Statistical Inference via Bootstrapping for Measures of Inequality," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 12(2), pages 133-150, March-Apr.
    15. Cowell, Frank A. & Kuga, Kiyoshi, 1981. "Additivity and the entropy concept: An axiomatic approach to inequality measurement," Journal of Economic Theory, Elsevier, vol. 25(1), pages 131-143, August.
    16. Garner, Thesia I. & Sastre, Mercedes, 1999. "The influence of demographic and household specific price indices on expenditure based inequality and welfare: a comparison of Spain and the United States," UC3M Working papers. Economics 6165, Universidad Carlos III de Madrid. Departamento de Economía.
    17. Robert T. Michael, 1975. "Variation Across Household in the Rate of Inflation," NBER Working Papers 0074, National Bureau of Economic Research, Inc.
    18. Coulter, Fiona A E & Cowell, Frank A & Jenkins, Stephen P, 1992. "Differences in Needs and Assessment of Income Distributions," Bulletin of Economic Research, Wiley Blackwell, vol. 44(2), pages 77-124, April.
    19. John Muellbauer, 1974. "Inequality Measures, Prices and Household Composition," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(4), pages 493-504.
    20. Robert A. Pollak, 1998. "The Consumer Price Index: A Research Agenda and Three Proposals," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 69-78, Winter.
    21. Hagemann, Robert P, 1982. "The Variability of Inflation Rates across Household Types," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 14(4), pages 494-510, November.
    22. Michael, Robert T, 1979. "Variation across Households in the Rate of Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(1), pages 32-46, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Oleksiy Kryvtsov, 2016. "Is there a quality bias in the Canadian CPI? Evidence from microdata," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 49(4), pages 1401-1424, November.
    2. Mark A. Wynne & Diego Rodriguez‐Palenzuela, 2004. "Measurement Bias in the HICP: What do we know and What do we need to know?," Journal of Economic Surveys, Wiley Blackwell, vol. 18(1), pages 79-112, February.
    3. Finn, Arden & Leibbrandt, Murray & Oosthuizen, Morne, 2014. "Poverty, inequality, and prices in post-apartheid South Africa," WIDER Working Paper Series 127, World Institute for Development Economic Research (UNU-WIDER).
    4. Guillermo E. Perry & Omar S. Arias & J. Humberto López & William F. Maloney & Luis Servén, 2006. "Poverty Reduction and Growth : Virtuous and Vicious Circles," World Bank Publications - Books, The World Bank Group, number 6997.
    5. Goni, Edwin & Lopez, Humberto & Serven, Luis, 2006. "Getting realabout inequality : evidence from Brazil, Colombia, Mexico, and Peru," Policy Research Working Paper Series 3815, The World Bank.
    6. Arden Finn & Murray Leibbrandt & Morné Oosthuizen, 2014. "Poverty, Inequality, and Prices in Post-Apartheid South Africa," WIDER Working Paper Series wp-2014-127, World Institute for Development Economic Research (UNU-WIDER).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:ebl:ecbull:v:4:y:2002:i:3:p:1-5 is not listed on IDEAS
    2. Eduardo Ley, 2002. "On Plutocratic and Democratic CPIs," Economics Bulletin, AccessEcon, vol. 4(3), pages 1-5.
    3. repec:cte:werepe:2909 is not listed on IDEAS
    4. Panayiota Lyssiotou & Panos Pashardes, 2004. "Comparing the True Cost of Living Indices of Demographically Different Households," Bulletin of Economic Research, Wiley Blackwell, vol. 56(1), pages 21-39, January.
    5. Sutirtha Bandyopadhyay & Bharat Ramaswami, 2022. "The representative agent bias in cost of living indices," Bulletin of Economic Research, Wiley Blackwell, vol. 74(1), pages 155-178, January.
    6. Río, Coral del, 1997. "An inequality decomposition method which minimizes equivalence scales contamination problems," UC3M Working papers. Economics 6038, Universidad Carlos III de Madrid. Departamento de Economía.
    7. Río, Coral del, 1997. "Demographic trends and living standards the case of Spain during the 1980´s," UC3M Working papers. Economics 6060, Universidad Carlos III de Madrid. Departamento de Economía.
    8. Garner, Thesia I. & Sastre, Mercedes, 1999. "The influence of demographic and household specific price indices on expenditure based inequality and welfare: a comparison of Spain and the United States," UC3M Working papers. Economics 6165, Universidad Carlos III de Madrid. Departamento de Economía.
    9. Thesia I. Garner & Javier Ruiz‐Castillo & Mercedes Sastre, 2003. "The Influence of Demographics and Household‐Specific Price Indices on Consumption‐Based Inequality and Welfare: A Comparison of Spain and the United States," Southern Economic Journal, John Wiley & Sons, vol. 70(1), pages 22-48, July.
    10. Gürer Eren & Weichenrieder Alfons, 2020. "Pro-rich inflation in Europe: Implications for the measurement of inequality," German Economic Review, De Gruyter, vol. 21(1), pages 107-138, April.
    11. Eduardo Ley, 2005. "Whose inflation? A characterization of the CPI plutocratic gap," Oxford Economic Papers, Oxford University Press, vol. 57(4), pages 634-646, October.
    12. Sunil Kumar & Renuka Mahadevan, 2008. "Construction of An Adult Equivalence Index to Measure Intra-household Inequality and Poverty: Case Study," Discussion Papers Series 363, School of Economics, University of Queensland, Australia.
    13. Frank A Cowell & Julie Litchfield, 1999. "Income Inequality Comparisons with Dirty Data: The UK and Spain during the 1980s," STICERD - Distributional Analysis Research Programme Papers 45, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    14. Lahoti Rahul & Jayadev Arjun & Reddy Sanjay, 2016. "The Global Consumption and Income Project (GCIP): An Overview," Journal of Globalization and Development, De Gruyter, vol. 7(1), pages 61-108, June.
    15. Stephen P. Jenkins & John Micklewright, 2007. "New Directions in the Analysis of Inequality and Poverty," Discussion Papers of DIW Berlin 700, DIW Berlin, German Institute for Economic Research.
    16. Melanie Borah & Carina Keldenich & Andreas Knabe, 2019. "Reference Income Effects in the Determination of Equivalence Scales Using Income Satisfaction Data," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 65(4), pages 736-770, December.
    17. Moyes, Patrick & Shorrocks, Anthony, 1998. "The impossibility of a progressive tax structure," Journal of Public Economics, Elsevier, vol. 69(1), pages 49-65, July.
    18. Svedberg, Peter & Tilton, John E., 2006. "The real, real price of nonrenewable resources: copper 1870-2000," World Development, Elsevier, vol. 34(3), pages 501-519, March.
    19. Paul Makdissi & Quentin Wodon, 2004. "Migration, poverty, and housing in Honduras," Estudios de Economia, University of Chile, Department of Economics, vol. 31(1 Year 20), pages 5-20, June.
    20. Coral Del Río & Javier Ruiz‐Castillo, 2001. "Intermediate Inequality and Welfare: The Case of Spain, 1980–81 to 1990–91," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 47(2), pages 221-237, June.
    21. Justin Van De Ven & John Creedy, 2005. "Taxation, Reranking and Equivalence Scales," Bulletin of Economic Research, Wiley Blackwell, vol. 57(1), pages 13-36, January.
    22. Hyun Son & Nanak Kakwani, 2006. "Measuring the impact of prices on inequality: With applications to Thailand and Korea," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 4(2), pages 181-207, August.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecolet:v:76:y:2002:i:1:p:137-144. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ecolet .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.