Consumer preferences and cost of living in Taiwan

Pang-Tien Lieu, Jung-Hui Liang and Jui-Hui Chen

Journal of Asian Economics, 2008, vol. 19, issue 3, 224-235

Abstract: This paper studies cost of living standards and variations in growth trends for consumers in Taiwan between 1951 and 2001 by allowing consumer preference to be a variable. Our study shows that ignoring changes in preference structure frequently leads to the underestimation of the consumer's true cost of living standards and growth scales in Taiwan. When changes in preference structure are taken into consideration, as was done in studies by Phlips and Sanz-Ferrer [Phlips, Louis, & Sanz-Ferrer, Richard. (1975). A taste-independent true index of the cost of living. Review of Economics and Statistics, 57(4), 495-501] and Heien and Dunn [Heien, D., & Dunn, J. (1985). The true cost of living index with changing preferences. Journal of Business and Economic Statistics, 3(4), 332-335] in the U.S., the Laspeyres price index may underestimate, not overestimate, the true cost of living standards and the growth scale in Taiwan for the 1980s and 1990s. Based on the above findings, when it is necessary to apply the cost of living adjustment clause to all relevant programs, an alternative index such as the non-parametric studied in this paper may be more appropriate than the usual Laspeyres CPI. We would like to suggest that the statistical authorities in Taiwan should also consider routinely compiling and publishing the non-parametric , together with the Laspeyres CPI.

Date: 2008
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