The Big Mac Index and Real-Income Disparity

Abstract

The Big Mac Index was introduced to (semi-humorously) test the theory of purchasing power parity and measure the disparity in currency values. Instead, in this paper, we consider this index to find out the per capita real-income disparity across 54 countries. We find that the per capita real-income can be very low in some countries even when Big Mac burgers are very cheap, like in India. Among these countries, Hong Kong’s per capita Big Mac affordability is the highest with 47 burgers daily whereas Pakistan’s people could afford just one a day. Additionally, we find that Russia and China’s Big Mac affordability has been significantly increasing over the last decade, Brazil’s has remained more or less constant, however USA’s Big Mac affordability has been falling, indicating that per capita real-income of Americans has been decreasing over the last decade. Finally, we find that increased role of the government might be negatively correlated to per capita real-income. Czech Republic has been experiencing increased Big Mac affordability as the country has been reducing the government’s role; whereas Argentina has been experiencing reduced Big Mac affordability as the country has been moving left and increasing the government’s power.

Keywords: Big Mac Index, Purchasing Power, Affordability, Real-income Disparity

JEL Classification: E2, E3, H6