Changes in the Real Purchasing Power by Income Quintile and the Implications

KDI Feature Article 2017 1st, eng.

8 Pages Posted: 10 Apr 2017

See all articles by Sora Chon

Sora Chon

Korea Development Institute (KDI)

Seongtae Kim

Korea Development Institute (KDI)

Date Written: April 10, 2017

Abstract

링크를 클릭하시면, 이 보고서의 한국어 버전을 보실 수 있습니다. http://ssrn.com/abstract=2949658.

■ The discrepancies in the real purchasing power of different income quintiles is due to the varying growths in nominal income created before the financial crisis. As for CPI inflation, it is very similar across all income levels.

○ CPI inflation has stalled at around a low 2%-range on an annual average basis for all income quintiles since 2003, and as such, no asymmetry has been found.

However, the nominal income gap widened significantly during the pre-crisis period and the resulting gap in purchasing power persists today.

- The real income of low-income households, in which the proportion of seniors has soared, has been almost stagnant compared to 2003, diminishing both economic and consumer sentiment.

■ The above findings imply that improving the income of low income households should be an essential part of policy to reduce the imbalance between consumption capacity and real income.

○ Certain policy measures, for instance, increasing imports of foreign agricultural, livestock and fishery products to counter the reduced supply of domestic products resulting from meteorological changes, are deemed inevitable to an extent as they are necessary in maintaining stable prices. However, those that intentionally control the prices of a few specific products based on an increase in the perceived inflation, are not recommended since they could distort the distribution of resources throughout the overall economy.

○ The purchasing power gap between income quintiles should be narrowed by improving income conditions, particularly for low-income households, most of whom are seniors.

- The quality and quantity of EITC programs should be enhanced to strengthen work incentives for the working poor and to expand indirect support such as vocational placement and training to enhance the abilities of able-bodied persons, including seniors.

- Additionally, the income disparity must be addressed by strengthening the mid- to long-term policies on income redistribution for the overall economy.

Suggested Citation

Chon, Sora and Kim, Seongtae, Changes in the Real Purchasing Power by Income Quintile and the Implications (April 10, 2017). KDI Feature Article 2017 1st, eng., Available at SSRN: https://ssrn.com/abstract=2949659

Sora Chon (Contact Author)

Korea Development Institute (KDI) ( email )

263 Namsejong-ro
Sejong-si 30149
Korea, Republic of (South Korea)

Seongtae Kim

Korea Development Institute (KDI) ( email )

263 Namsejong-ro
Sejong-si 30149
Korea, Republic of (South Korea)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
13
Abstract Views
221
PlumX Metrics