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The Tale of the Two Italies: Regional Price Parities Accounting for Differences in the Quality of Services

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  • Martina Menon
  • Federico Perali
  • Ranjan Ray
  • Nicola Tommasi

Abstract

This study estimates regional price parities (RPP) in Italy based on household budget data and estimated pseudo unit values to compare living standards between Italian regions. The simultaneous consideration of spatial variation in prices and in quality of services between regions is a distinctive feature of this study. The study makes a methodological contribution by proposing a quality adjustment procedure to spatial price calculations whose appeal extends beyond Italy to the international context of cross-country PPP calculations. The average difference in the true cost of living between North and South is about 30-40 percent depending on the regions selected for comparison. Such a divide in cost of living and in market efficiency, probably one of the highest differentials in the world, is the traditional incipit of the tale of the two Italies. The estimations of RPP allows us to investigate the policy conundrum of why Italians, and dependent workers in particular, do not migrate towards the South given the much lower cost of living there. The answer, which takes us closer to the end of the tale, lies partly in the superior quality of services in the North and partly in the severe restriction on job opportunities in the South, especially for female earners.

Suggested Citation

  • Martina Menon & Federico Perali & Ranjan Ray & Nicola Tommasi, 2021. "The Tale of the Two Italies: Regional Price Parities Accounting for Differences in the Quality of Services," CHILD Working Papers Series 89 JEL Classification: D1, Centre for Household, Income, Labour and Demographic Economics (CHILD) - CCA.
    • Handle: RePEc:cca:wchild:89
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    2. Laureti Tiziana & Polidoro Federico, 2022. "Using Scanner Data for Computing Consumer Spatial Price Indexes at Regional Level: An Empirical Application for Grocery Products in Italy," Journal of Official Statistics, Sciendo, vol. 38(1), pages 23-56, March.
    3. Echeverría, Lucía, 2020. "Modelos colectivos de consumo y distribución intra-hogar. Teoría y aplicaciones," Nülan. Deposited Documents 3832, Universidad Nacional de Mar del Plata, Facultad de Ciencias Económicas y Sociales, Centro de Documentación.
    4. Amita Majumder & Ranjan Ray, 2020. "National and subnational purchasing power parity: a review," DECISION: Official Journal of the Indian Institute of Management Calcutta, Springer;Indian Institute of Management Calcutta, vol. 47(2), pages 103-124, June.

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    More about this item

    Keywords

    price parities; cost of living; quality of public services; unit values.;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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