Cross-country income levels over time: Did the developing world suddenly become much richer?

The latest global survey on relative prices and income levels, for the year 2011, showed changes to relative income levels that were larger in lower-income countries, thereby narrowing the world income distribution compared to estimates based on the 2005 survey. This paper examines whether changes in measurement methodology between the 2011 survey and the previous survey for 2005 can explain these large differences. We construct a counterfactual set of relative prices for 2005 that harmonizes measurement and we no longer find systematic differences across income levels, implying that international income inequality based on the 2005 survey was overstated.