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A true cost of living index for Spain using a microeconomic approach and censored data

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Author Info

  • Elena Lasarte Navamuel

    (REGIOLab, University of Oviedo - Spain)

  • Dusan Paredes

    ()
    (IDEAR - Department of Economics, Universidad Católica del Norte - Chile)

  • Esteban Fernández Vázquez

    (REGIOLab, University of Oviedo - Spain)

Abstract

A true Cost of Living (COL) index measures the expenditure ratio of maintaining a utility level for two price vectors. Its application and empirical testing has been, generally, focalized on a temporal perspective. The aim of this paper is to calculate a spatial COL for the regions of Spain. For this purpose, we will use the microdata from the 2010 Households Budget Survey (EPF, Encuesta de Presupuestos Familiares) provided by the Spanish Statistical Institute (INE, Instituto Nacional de Estadística). We will denominate this index Spatial Cost of Living Index (SCOL). This type of analysis is not usually made by the national statistical agencies and Spain is not an exception. We use a microeconomic approach that keeps the households’ level of utility constant and allows substitution among different baskets of goods across space. The results reveal large differences in SCOL across the Spanish regions. The estimates of the SCOL index allows for reconsidering regional comparisons in terms of average wages. Even when nominal monetary magnitudes for Regional Accounts show great regional disparities, regional differences are largely moderated when the wage figures are corrected by our SCOL.

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File URL: https://sites.google.com/a/ucn.cl/wpeconomia/archivos/WP2012-12.pdf
File Function: First version, 2012
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Bibliographic Info

Paper provided by Universidad Catolica del Norte, Chile, Department of Economics in its series Documentos de Trabajo en Economia y Ciencia Regional with number 26.

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Length: 17 pages
Date of creation: Aug 2012
Date of revision: Aug 2012
Handle: RePEc:cat:dtecon:dt201212

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Related research

Keywords: Spatial cost of living index; AIDS; two-stepestimation for censored data; Spain;

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References

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  1. Michael J. Boskin, 1998. "Consumer Prices, the Consumer Price Index, and the Cost of Living," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 3-26, Winter.
  2. Vera Lucia Fava, 2010. "Price dispersion and price indexes," Applied Economics, Taylor & Francis Journals, vol. 42(1), pages 23-36.
  3. Alexandru Voicu & Michael L. Lahr, 2004. "Expenditure-based Interarea Cost of Living Index," Urban/Regional 0403006, EconWPA.
  4. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-26, June.
  5. Dusan Paredes & Víctor Iturra, 2011. "Substitution Bias and the Construction of a Spatial Cost of Living Index," Documentos de Trabajo en Economia y Ciencia Regional 13, Universidad Catolica del Norte, Chile, Department of Economics, revised May 2011.
  6. Dean Jolliffe, 2006. "Poverty, Prices, and Place: How Sensitive is the Spatial Distribution of Poverty to Cost of Living Adjustments?," Economic Inquiry, Western Economic Association International, vol. 44(2), pages 296-310, April.
  7. Jens Suedekum, 2006. "Agglomeration And Regional Costs Of Living," Journal of Regional Science, Wiley Blackwell, vol. 46(3), pages 529-543.
  8. J. Scott Shonkwiler & Steven T. Yen, 1999. "Two-Step Estimation of a Censored System of Equations," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(4), pages 972-982.
  9. Koo, Jahyeong & Phillips, Keith R & Sigalla, Fiona D, 2000. "Measuring Regional Cost of Living," Journal of Business & Economic Statistics, American Statistical Association, vol. 18(1), pages 127-36, January.
  10. Heien, Dale & Wessells, Cathy Roheim, 1990. "Demand Systems Estimation with Microdata: A Censored Regression Approach," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(3), pages 365-71, July.
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