Drawbacks of PPP
Some factors explain why PPP is not a good reflection of reality.
- Tax differences: Government sales taxes such as the value-added tax (VAT) can spike prices in one country, relative to another
- Government Intervention: Tariffs can dramatically augment the price of imported goods, where the same products in other countries will be comparatively cheaper.
- Market Competition: Goods might be deliberately priced higher in a country. Higher prices are because a company may have a competitive advantage over other sellers. The company may have a monopoly keeping them artificially high.
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