Lost in Aggregation: Geographic Mismeasurement of Income and Spending

Jack Chylak, Leo Feler and Sinem Hacioglu Hoke

No 2025-050, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Using zip-code median income as a proxy for household income is common in economics but can mask heterogeneity and yield misleading conclusions. Using zip-code median income and self-reported household incomes from a representative panel of 150,000 U.S. households, we decompose average retail spending for 2018-2024. When using self-reported incomes, we observe substantial divergence in spending between low- and high-income households starting in mid-2021. When using zip-code aggregates as a proxy, this divergence disappears. Our findings indicate a 35 to 75 percent discrepancy between zip-code aggregates and self-reported incomes, highlighting the limitation of zip-code aggregates as a proxy for household incomes.

Keywords: Spending; Income; Heterogeneity; Zip-code Average Income (search for similar items in EconPapers)
JEL-codes: E01 E20 E32 (search for similar items in EconPapers)
Pages: 36 p.
Date: 2025-07-07
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2025-50

DOI: 10.17016/FEDS.2025.050

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