On comparing cost of living of cities using expatriate price survey

Boon Seng Tan

Policy Studies, 2016, vol. 37, issue 1, 53-71

Abstract: Commercial cost of living indexes, which are nominal Laspeyres price indexes derived from expatriate price surveys, are increasingly used in policy debate. However, these indexes contain two systematic errors – (1) using nominal exchange rate, instead of the purchasing power parity equivalent, cause upward biases in high income cities and (2) using a fixed basket causes upward biases in cities with different consumption pattern – that make them unfit for the purpose of policy debate if the errors are serious enough. Using a real Fisher index corrects these systemic errors. We showed high congruence in pair-wise comparison between these two indexes, but substantial differences in ranking arising from the systematic errors. Commercial indexes are useful for designing expatriate compensation, but we need a real Fisher index to calculate and rank the cost of living among cities.

Date: 2016
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DOI: 10.1080/01442872.2015.1108400

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