International income inequality : measuring PPP bias by estimating Engel curves for food

Abstract

Price-adjusted data on national incomes applied in cross-country compar- isons are measured with bias. By studying micro data, this paper ¯nds that the bias is systematic: the poorer a country is, the more its income tends to be overestimated. Consequently, international income inequalities are under- estimated. The bias in the macro price variables (PPPs), is caused by factors ana- logues to those creating bias in consumer price index numbers (CPIs). Ex- ploiting this fact, the PPP bias is measured by estimating Engel curves for food, a method already established to measure CPI bias.