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The Impact of Direct Taxes on the Cost of Living


  • Gillingham, Robert
  • Greenlees, John S


In this paper, the authors define a cost-of-living index including direct taxes. They show its relationship to the traditional index and demonstrate how nonconsumption costs are properly treated. They t hen define a fixed-weight approximation, a tax and price index (TPI). Using federal, state, local, and social security tax rates for 1967- 85, the authors construct annual TPI series based on household data. They find that inclusion of direct taxes has sizable impacts on the e stimated rate of inflation. Partitioning their household sample, they find that recognition of taxes significantly alters inflation rate d ifferentials estimated using consumption prices alone. Copyright 1987 by University of Chicago Press.

Suggested Citation

  • Gillingham, Robert & Greenlees, John S, 1987. "The Impact of Direct Taxes on the Cost of Living," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 775-796, August.
  • Handle: RePEc:ucp:jpolec:v:95:y:1987:i:4:p:775-96
    DOI: 10.1086/261485

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    Cited by:

    1. Matthew D. Shapiro & David W. Wilcox, 1996. "Mismeasurement in the Consumer Price Index: An Evaluation," NBER Chapters, in: NBER Macroeconomics Annual 1996, Volume 11, pages 93-154, National Bureau of Economic Research, Inc.
    2. Louis Kaplow, 1995. "Regional Cost-of-Living Adjustments in Tax-Transfer Schemes," NBER Working Papers 5008, National Bureau of Economic Research, Inc.
    3. Steven A. Cobb, 1991. "Substitution Bias and Cost of Living Variability for U.S. Demographic Groups:," American Journal of Economics and Sociology, Wiley Blackwell, vol. 50(1), pages 85-97, January.

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