The latest global survey on relative prices and income levels, for the year 2011, showed changes to relative income levels that were larger in lower income countries, thereby narrowing the world income distribution compared to estimates based on the previous, 2005, survey. This paper examines whether changes in measurement methodology between the 2005 and 2011 survey can explain these large differences. We construct a counterfactual set of relative prices for 2005 that harmonizes measurement, and we no longer find systematic differences across income levels, implying that international income inequality based on the 2005 survey was overstated.
Inklaar, Robert, and D. S. Prasada Rao.
"Cross-Country Income Levels over Time: Did the Developing World Suddenly Become Much Richer?"
American Economic Journal: Macroeconomics,
Methodology for Collecting, Estimating, and Organizing Macroeconomic Data; Data Access
Personal Income, Wealth, and Their Distributions
Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
Price Level; Inflation; Deflation
Macroeconomic Analyses of Economic Development