Price considerations in the measurement of inequality
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Date
2023-10
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University of New Brunswick
Abstract
This paper offers a unique lens for understanding inequality by examining the impact of subnational price level variations at the level of Core-Based Statistical Areas (CBSA). It demonstrates that regional price level differentials provide a pertinent perspective for comprehending inequality. The paper shows that the use of incomes that have not been adjusted by a regional price deflator tend to upwardly bias inequality measurements such as the Gini Coefficient and Atkinson Index. It reveals that adjusting for purchasing power can lead to changes in the Gini coefficient, with a more pronounced effect in states marked by significant price level disparities. The paper also highlights that the Regional Price Parity (RPP) adjustment alters the composition of the lowest income bracket, particularly impacting rural residents. The findings suggest that although standard Gini and Atkinson Indices are upward biased when using unadjusted data, the effect is small enough to be ignored in most cases.