Adjusting Inequalities for Regional Price Parities: Importance and Implications

My paper with Youcef Msaid on the impact of adjusting inequality figures with regional price indices (as opposed to national indices) is now available at the Journal of Regional Analysis & Policy.  In the paper we show that doing this adjustment reduces modestly the level of inequality and changes dramatically the geographical distribution of households in the top and bottom deciles of the income distribution. The latter point is crucial to formulating proper policy to deal with inequality. The abstract is below :

Corrections to CPS data dramatically change the geographic distribution of the top and bottom deciles of the income distribution. We correct the measure of real personal and household income with regional price indices from BEA. Uncorrected figures have poorer states over-represented in the bottom decile, while corrected figures have much of that decile living in urban areas in NY and CA. We draw policy-relevant conclusions from these facts, mostly with regard to housing policy.

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