Distributional Aspects of Price Comparisons

Abstract

The distributional consequences of price changes and of government policy on the prices of consumer goods have received considerable attention in the press in the last few years. Not all unpopular price policies have caused the extremity of reaction which occurred in Poland in 1970 and June 1976. In both cases proposed food price increases caused political upheaval which in 1970 led to the resignation of Party Chief Gomulka. To be sure, these price increases, actual or proposed, had not only distributional consequences but also an effect on average purchasing power. However, in Poland in 1970, the policy package would have added only around 2 per cent to the official price index and included other sweeteners. Therefore, the distributional consequences were the dominating ones. Another example is the increase in the prices of fuel, electricity in particular, in 1975–76 in the UK. A great deal of concern was expressed on behalf of pensioners and other low-income groups — see National Consumer Council (1976) and Committee on Nationalised Industries (1976). Under pressure, the government in July 1976 decided to extend the means-tested benefits available to households eligible for Supplementary Benefit and Family Income Supplement to include fuel bills.

I am very grateful to Angus Deaton and Richard Portes for helpful comments, to Betty Low for assistance in data preparation and to John Perkins, without whose excellent programming the paper would not have been written.