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Beyond the CPI: An Augmented Cost-of-Living Index

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  • Nordhaus, William D

Abstract

This note examines an augmented cost-of-living index (ACOLI) for the purpose of accounting for 'augmented consumption' in real-income measures. Well-being includes not only conventional consumer purchases but also goods and services provided by employers, by mandated social regulations, and by tax-financed public goods. Because augmented consumption is often provided in ways that raise prices but not market incomes, deflating with conventional price indexes may understate real income growth. An exploratory application of the ACOLI approach to the United States during the 1960-97 period suggests that the Consumer Price Index has grown about 19 percent faster than the ACOLI. This correction would reduce the estimated cost-of-living increase by .47 percent per year over the last thirty- seven years.

Suggested Citation

  • Nordhaus, William D, 1999. "Beyond the CPI: An Augmented Cost-of-Living Index," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(2), pages 182-187, April.
    • Handle: RePEc:bes:jnlbes:v:17:y:1999:i:2:p:182-87
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    Cited by:

    1. Karl‐Friedrich Israel & Gunther Schnabl, 2024. "Alternative measures of price inflation and the perception of real income in Germany," The World Economy, Wiley Blackwell, vol. 47(2), pages 618-636, February.
    2. Spencer Banzhaf, H., 2005. "Green price indices," Journal of Environmental Economics and Management, Elsevier, vol. 49(2), pages 262-280, March.
    3. Banzhaf, H. Spencer, 2002. "Quality Adjustment for Spatially-Delineated Public Goods: Theory and Application to Cost-of-Living Indices in Los Angeles," Discussion Papers 10833, Resources for the Future.

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