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

John A. Bishop (), Jonathan Lee and Lester A. Zeager ()
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John A. Bishop: Department of Economics East Carolina University, Greenville, NC 27858, USA
Lester A. Zeager: Department of Economics East Carolina University, Greenville, NC 27858, USA

No 438, Working Papers from ECINEQ, Society for the Study of Economic Inequality

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.

Keywords: regional price parities; poverty; inequality; tax progressivity; metro-size premiums. (search for similar items in EconPapers)
JEL-codes: D31 H23 I32 R32 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2017-05
New Economics Papers: this item is included in nep-geo, nep-pbe and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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