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Price Adjustments and Poverty Measurement / Nicola Amendola [and three others].
Author
Amendola, Nicola
[Browse]
Format
Book
Language
English
Published/Created
Washington, DC : World Bank, 2023.
Description
1 online resource (51 pages).
Availability
Available Online
World Bank E-Library Publications
Details
Subject(s)
Price indexes
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Poverty
—
Measurement
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Series
Policy research working papers.
[More in this series]
Summary note
Measuring poverty entails making interpersonal welfare comparisons, that should account for differences in prices faced by households, both over time and across space. This paper investigates the impact of seemingly minor differences in the practical implementation of price adjustments, by developing an analytical framework that is consistent with standard consumer theory and mindful of the data limitations faced by practitioners. The main result is at odds with common sense: even when multiple price indexes are available, say a food and a nonfood Consumer Price Index, it turns out that using a single price index, the total Consumer Price Index, to adjust the consumption aggregate is recommended. The practice of adjusting the components of the consumption aggregate separately, using matching deflators-food expenditure with the food index and nonfood expenditure with the nonfood index-can lead to a systematic bias in the welfare measure, and consequently in poverty and inequality measures. The direction of the bias can be easily predicted based on the price level and household consumption patterns. On the interplay between spatial and temporal deflation, the findings show that temporal deflation should be carried out before implementing adjustments to spatial cost-of-living differences. The paper illustrates these findings using the Islamic Republic of Iran's 2019 Household Income and Expenditure survey: the bias in the headcount poverty rate due to incorrect deflation is substantive (5-10 percent for estimates at the national level, 15-20 percent in urban and rural areas, and more than 30 percent for district-level headcount rates). Higher-order Foster-Greer-Thorbecke poverty measures are even more affected.
Source of description
Description based on publisher supplied metadata and other sources.
Other standard number
10.1596/1813-9450-10426
Statement on language in description
Princeton University Library aims to describe library materials in a manner that is respectful to the individuals and communities who create, use, and are represented in the collections we manage.
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