Pro-Rich Inflation in Europe: Implications for the Measurement of Inequality

44 Pages Posted: 24 May 2018  

Alfons J. Weichenrieder

Goethe University Frankfurt - Department of Applied Econometrics and International Economic Policy; Vienna University of Economics and Business; CESifo (Center for Economic Studies and Ifo Institute)

Eren Gürer

Goethe University Frankfurt - Department of Applied Econometrics and International Economic Policy

Date Written: May 17, 2018

Abstract

This paper studies the distributional consequences of a systematic variation in expenditure shares and prices. Using European Union Household Budget Surveys and Harmonized Index of Consumer Prices data, we construct household-specific price indices and reveal the existence of a pro-rich inflation in Europe. Particularly, over the period 2001-15, the consumption bundles of the poorest deciles in 25 European countries have, on average, become 10.5 percentage points more expensive than those of the richest decile. We find that ignoring the differential inflation across the distribution underestimates the change in the Gini (based on consumption expenditure) by up to 0.03 points. Cross-country heterogeneity in this change is large enough to alter the inequality ranking of numerous countries. The average inflation effect we detect is almost as large as the change in the standard Gini measure over the period of interest.

Keywords: Inequality, Gini, EU countries, income dependent inflation

JEL Classification: D31

Suggested Citation

Weichenrieder, Alfons J. and Gürer, Eren, Pro-Rich Inflation in Europe: Implications for the Measurement of Inequality (May 17, 2018). SAFE Working Paper No. 209. Available at SSRN: https://ssrn.com/abstract=3183723

Alfons J. Weichenrieder (Contact Author)

Goethe University Frankfurt - Department of Applied Econometrics and International Economic Policy ( email )

United States

HOME PAGE: http://www.uni-frankfurt.de/fb02/weichenrieder/

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Eren Gürer

Goethe University Frankfurt - Department of Applied Econometrics and International Economic Policy ( email )

United States

Register to save articles to
your library

Register

Paper statistics

Downloads
197
rank
140,826
Abstract Views
883
PlumX