Taking prices seriously in the measurement of inequality

In the measurement of inequality, adjustments for differences across households in their demographic composition and in the price regimes they face are usually very simple. Often, nominal expenditure (or income) is adjusted with an expenditure-independent price deflator and a price-independent equivalence scale. I show that using more flexible expendituredependent price deflators and price-dependent equivalence scales affects the level of, and trend in, measured family expenditure inequality in Canada over 1969–1997. For example, standard methods show a significant decrease in inequality between 1969 and 1978, but more flexible methods show a significant increase in inequality over this period.  2002 Elsevier Science B.V. All rights reserved. JEL classification: D63; D31; D11