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Price Indexes, Inequality, and the Measure of World Poverty

I discuss the measurement of world poverty and inequality, with particular attention to the role of 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 globally 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 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.

Authors: 
Angus Deaton, Princeton University
Publication Date: 
January, 2010
Publication Status: