The Myth of Post-Reform Income Stagnation in Brazil

ByIrineu E de Carvalho Filho, Marcos Chamon

December 1, 2006

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper uses Engel curves to estimate real income growth in Brazil. The estimated per capita household real income growth in metropolitan areas during 1987-2002 is about 4½ percent per year, well above the "headline" growth of 1½ percent obtained by deflating nominal incomes by the CPI. This suggests a substantial CPI bias during that period, likely owing to one-off effects of trade liberalization and inflation stabilization. The estimated unmeasured gains are higher for poorer households, implying a marked reduction in "real" inequality. This finding challenges the conventional wisdom that post-reform real income growth in Brazil was low.

Subject: Consumer price indexes, Expenditure, Household consumption, National accounts, Personal income, Prices, Total expenditures

Keywords: bias estimate, Consumer price indexes, CPI bias, durable goods, Economic Reform, expenditure data, expenditure inequality, expenditures notebook, Global, Household consumption, income growth, Inflation Stabilization, Personal income, price index, Total expenditures, Trade Liberalization, WP

Pages:
34
Volume:
2006
DOI:
https://doi.org/10.5089/9781451865356.001
Issue:
275
Series:
Working Paper No. 2006/275
Stock No:
WPIEA2006275
ISBN:
9781451865356
ISSN:
1018-5941

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