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Benchmark averaging and the measurement of changes in international income inequality

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  • Robert Hill
  • Daniel Melser

Abstract

Using data for 113 countries covering the period 1980–2005 we show how international comparisons of income inequality and the way it changes over time are inherently sensitive to (i) the choice of multilateral price index formula used to convert per capita incomes into units of the same currency, (ii) the approach (if any) used for reconciling spatial benchmarks with national growth rates, and (iii) the way inequality is measured. We then consider how best to deal with these issues and highlight some distortions that can arise in such comparisons. Based on our preferred methods we observe convergence when countries are population weighted and divergence when they are not. Copyright Kiel Institute 2015

Suggested Citation

  • Robert Hill & Daniel Melser, 2015. "Benchmark averaging and the measurement of changes in international income inequality," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 151(4), pages 767-801, November.
    • Handle: RePEc:spr:weltar:v:151:y:2015:i:4:p:767-801
    DOI: 10.1007/s10290-015-0229-6
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    Cited by:

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    More about this item

    Keywords

    Multilateral price index; International comparisons program; Penn World Table; Substitution bias; Spatiotemporal consistency; Benchmark averaging; Dissimilarity index ; C43; E31; O47;
    All these keywords.

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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