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Incorporating spatial price adjustments in U.S. public policy analysis

Author

Listed:
  • John A. Bishop

    (Department of Economics East Carolina University, Greenville, NC 27858, USA)

  • Jonathan M. Lee

    (Department of Economics East Carolina University, Greenville, NC 27858, USA)

  • Lester A. Zeager

    (Department of Economics East Carolina University, Greenville, NC 27858, USA)

Abstract

The U.S. Bureau of Economic Analysis has recently released regional price parities (RPPs) for the 325 Standard Metropolitan Statistical Areas and the 50 state nonmetropolitan areas. We consider the effects of RPP adjustments on four public policy issues: poverty rates, family income inequality, tax progressivity, and metropolitan-size premiums. We demonstrate that RPP adjustments strongly affect the spatial distribution of U.S. poverty, have an equalizing effect on income inequality (equivalent to a $1,500 cash transfer to each U.S. family), and also increase effective federal tax progressivity by more than 25 percent. Income premiums for the major metropolitan areas largely disappear after adjusting for spatial prices and controlling for the characteristics of family heads. Metro-size premiums also depend on whether we adjust incomes by the overall RPPs or a narrower housing-price index (as in earlier research). We conjecture that other public policy findings are sensitive to adjustments for spatial price differences.

Suggested Citation

  • John A. Bishop & Jonathan M. Lee & Lester A. Zeager, 2017. "Incorporating spatial price adjustments in U.S. public policy analysis," Working Papers 438, ECINEQ, Society for the Study of Economic Inequality.
    • Handle: RePEc:inq:inqwps:ecineq2017-438
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    File URL: http://www.ecineq.org/milano/WP/ECINEQ2017-438.pdf
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    References listed on IDEAS

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    1. John A. Bishop & John P. Formby & Peter Lambert, 2000. "Redistribution through the Income Tax: The Vertical and Horizontal Effects of Noncompliance and Tax Evasion," Public Finance Review, , vol. 28(4), pages 335-350, July.
    2. A. B. Atkinson, 2003. "Income Inequality in OECD Countries: Data and Explanations," CESifo Economic Studies, CESifo Group, vol. 49(4), pages 479-513.
    3. Bishop, John A & Formby, John P & Thistle, Paul D, 1994. "Convergence and Divergence of Regional Income Distributions and Welfare," The Review of Economics and Statistics, MIT Press, vol. 76(2), pages 228-235, May.
    4. Angus Deaton & Olivier Dupriez, 2011. "Spatial price differences within large countries," Working Papers 1321, Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies..
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    6. David Albouy, 2009. "The Unequal Geographic Burden of Federal Taxation," Journal of Political Economy, University of Chicago Press, vol. 117(4), pages 635-667, August.
    7. Combes, Pierre-Philippe & Duranton, Gilles & Gobillon, Laurent, 2008. "Spatial wage disparities: Sorting matters!," Journal of Urban Economics, Elsevier, vol. 63(2), pages 723-742, March.
    8. Diego Puga, 2010. "The Magnitude And Causes Of Agglomeration Economies," Journal of Regional Science, Wiley Blackwell, vol. 50(1), pages 203-219, February.
    9. Edward L. Glaeser & Matthew G. Resseger, 2010. "The Complementarity Between Cities And Skills," Journal of Regional Science, Wiley Blackwell, vol. 50(1), pages 221-244, February.
    10. Leah Beth Curran & Harold Wolman & Edward W. Hill & Kimberly Furdell, 2006. "Economic Wellbeing and Where We Live: Accounting for Geographical Cost-of-living Differences in the US," Urban Studies, Urban Studies Journal Limited, vol. 43(13), pages 2443-2466, December.
    11. Glaeser, Edward L & Mare, David C, 2001. "Cities and Skills," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 316-342, April.
    12. Bettina Aten & Eric Figueroa & Troy Martin & Trudi Renwick (Census), 2014. "Supplemental Poverty Measure: A Comparison of Geographic Adjustments with Regional Price Parities vs. Median Rents from the American Community Survey," BEA Working Papers 0111, Bureau of Economic Analysis.
    13. Bishop, John A & Chow, K Victor & Formby, John P, 1994. "Testing for Marginal Changes in Income Distributions with Lorenz and Concentration Curves," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(2), pages 479-488, May.
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    17. Roback, Jennifer, 1982. "Wages, Rents, and the Quality of Life," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1257-1278, December.
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    19. John A. Bishop & Jonathan Lee & Lester A. Zeager, 2017. "Improving the Supplemental Poverty Measure: Two proposals," Working Papers 429, ECINEQ, Society for the Study of Economic Inequality.
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    22. Bishop, John A & Formby, John P & Zheng, Buhong, 1997. "Statistical Inference and the Sen Index of Poverty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(2), pages 381-387, May.
    23. Carrillo, Paul E. & Early, Dirk W. & Olsen, Edgar O., 2014. "A panel of interarea price indices for all areas in the United States 1982–2012," Journal of Housing Economics, Elsevier, vol. 26(C), pages 81-93.
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    More about this item

    Keywords

    regional price parities; poverty; inequality; tax progressivity; metro-size premiums.;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis

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