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American Economic Review: Vol. 100 No. 1 (March 2010)

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Price Indexes, Inequality, and the Measurement of World Poverty

Article Citation

Deaton, Angus. 2010. "Price Indexes, Inequality, and the Measurement of World Poverty." American Economic Review, 100(1): 5-34.

DOI: 10.1257/aer.100.1.5

Abstract

I discuss the measurement of world poverty and inequality, with particular attention to the role of purchasing power parity (PPP) price indexes from the International Comparison Project. Global inequality increased with the latest revision of the ICP, and this reduced the global poverty line relative to the US dollar. The recent large increase of nearly half a billion poor people came from an inappropriate updating of the global poverty line, not from the ICP revisions. Even so, PPP comparisons between widely different countries rest on weak theoretical and empirical foundations. I argue for wider use of self-reports from international monitoring surveys, and for a global poverty line that is truly denominated in US dollars. (JEL C43, D31, I31, I32, F31)

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Deaton, Angus (Princeton U)

JEL Classifications

C43: Index Numbers and Aggregation; leading indicators
D31: Personal Income, Wealth, and Their Distributions
F31: Foreign Exchange
I31: General Welfare
I32: Measurement and Analysis of Poverty


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