Contradictory Trends in Global Income Inequality: a Tale of Two Biases
نویسندگان
چکیده
Did global income inequality rise or fall over the past twenty years? Exchange rate comparisons suggest that inequality has risen, but the purchasing power comparisons of the Penn World Tables suggest inequality has fallen. We show that both measures are biased. Exchange rate comparisons ignore the relative price of non-tradables, whilst the Penn World Table method of calculating purchasing power parities is subject to substitution bias. Correcting for this bias, using Afriat true indexes, we find no compelling evidence of a significant change in world inequality. The contradictory trends of the exchange rate and PWT measures can be explained by the fact that national price structures became less similar over time. Contact: [email protected]
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