When More Poor Means Less Poverty: On Income Inequality and Purchasing Power

Posted: 6 Dec 2013

See all articles by Andreas Bergh

Andreas Bergh

Research Institute of Industrial Economics (IFN); Lund University - Department of Economics

Therese Nilsson

Research Institute of Industrial Economics (IFN); Lund University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: January 1, 2013

Abstract

We show theoretically that the poor can benefit from price changes induced by higher income inequality. As the number of poor in a society increases, or when the income difference between rich and poor increases, the market for products aimed towards the poor grows and such products become more profitable. As a result, there are circumstances where an increase in poverty associates with higher purchasing power of the poor. Using cross-country data at two points in time on the price of rice and Big Mac hamburgers, we confirm the relationship between inequality and purchasing power of the poor, and show that it is robust to several control variables and also to a first-difference specification.

Keywords: Inequality; Poverty; Prices; Purchasing power

JEL Classification: D63, I3

Suggested Citation

Bergh, Andreas and Nilsson, Therese, When More Poor Means Less Poverty: On Income Inequality and Purchasing Power (January 1, 2013). Southern Economic Journal, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2363789

Andreas Bergh (Contact Author)

Research Institute of Industrial Economics (IFN) ( email )

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Lund University - Department of Economics ( email )

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Therese Nilsson

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Lund University - Department of Economics ( email )

P.O. Box 7082
S-220 07 Lund
Sweden
+46 46 222 46 43 (Phone)

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