Pro-rich inflation in Europe: Implications for the measurement of inequality

Eren Gürer 1  and Alfons Weichenrieder 1 , 2 , 3
  • 1 Goethe University Frankfurt, Faculty of Economics and Business Administration, Frankfurt (Main), Germany
  • 2 Vienna University of Economics and Business, Vienna, Austria
  • 3 CESifo, Munich, Germany
Eren Gürer
  • Goethe University Frankfurt, Faculty of Economics and Business Administration, 60323, Frankfurt (Main), Germany
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and Alfons Weichenrieder
  • Corresponding author
  • Goethe University Frankfurt, Faculty of Economics and Business Administration, 60323, Frankfurt (Main), Germany
  • Vienna University of Economics and Business, Vienna, Austria
  • CESifo, Munich, Germany
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  • Search for other articles:
  • degruyter.comGoogle Scholar

Abstract

This paper studies the distributional consequences of a systematic variation in expenditure shares and prices. Using European Union Household Budget Surveys and Harmonized Index of Consumer Prices data, we construct household-specific price indices and reveal the existence of a pro-rich inflation in Europe. Over the period 2001–15, the consumption bundles of the poorest deciles in 25 European countries have, on average, become 11.2 percentage points more expensive than those of the richest deciles. We find that ignoring the differential inflation across the distribution underestimates the change in the Gini (based on consumption expenditure) by almost up to 0.04 points. Cross-country heterogeneity in this change is large enough to alter the inequality ranking of numerous countries. The average inflation effect we detect is almost as large as the change in the standard Gini measure over the period of interest.

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