Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/128448
Authors: 
Almås, Ingvild
Kjelsrud, Anders
Year of Publication: 
2016
Series/Report no.: 
CESifo Working Paper 5740
Abstract: 
It is well known that people’s consumption patterns change with income. Relative price changes therefore affect rich and poor consumers differently. Yet, the standard price indices are not income-specific and hence, the use of these mask these differences in cost-of-living. In this paper, we study consumption inequality in India, while fully allowing for non-homotheticity. Our analysis shows that the changes in relative prices in a large part of the period from 1993 to 2012 were pro-poor, in the sense that they favored the poor relative to the rich. As a result, we also find that the standard measures significantly overestimate the rise in real inequality. Moreover, we show that the allowance for non-homotheticity is quantitatively much more im-portant in our application than the adjustment for substitution in consumption, despite the larger attention paid to the latter in the literature. We also illustrate how conventional measures exaggerate inter-temporal changes in inequality when there is segregation in consumption / production, by which we mean that people’s consumption patterns are skewed towards goods intensively produced by people of their own group.
Subjects: 
inequality
cost-of-living
measurement
JEL: 
C43
Document Type: 
Working Paper

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