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Incorporating spatial price adjustments in U.S. public policy analysis

Author

Listed:
  • John A. Bishop

    (Department of Economics East Carolina University, Greenville, NC 27858, USA)

  • Jonathan M. Lee

    (Department of Economics East Carolina University, Greenville, NC 27858, USA)

  • Lester A. Zeager

    (Department of Economics East Carolina University, Greenville, NC 27858, USA)

Abstract

The U.S. Bureau of Economic Analysis has recently released regional price parities (RPPs) for the 325 Standard Metropolitan Statistical Areas and the 50 state nonmetropolitan areas. We consider the effects of RPP adjustments on four public policy issues: poverty rates, family income inequality, tax progressivity, and metropolitan-size premiums. We demonstrate that RPP adjustments strongly affect the spatial distribution of U.S. poverty, have an equalizing effect on income inequality (equivalent to a $1,500 cash transfer to each U.S. family), and also increase effective federal tax progressivity by more than 25 percent. Income premiums for the major metropolitan areas largely disappear after adjusting for spatial prices and controlling for the characteristics of family heads. Metro-size premiums also depend on whether we adjust incomes by the overall RPPs or a narrower housing-price index (as in earlier research). We conjecture that other public policy findings are sensitive to adjustments for spatial price differences.

Suggested Citation

  • John A. Bishop & Jonathan M. Lee & Lester A. Zeager, 2017. "Incorporating spatial price adjustments in U.S. public policy analysis," Working Papers 438, ECINEQ, Society for the Study of Economic Inequality.
    • Handle: RePEc:inq:inqwps:ecineq2017-438
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    File URL: http://www.ecineq.org/milano/WP/ECINEQ2017-438.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    regional price parities; poverty; inequality; tax progressivity; metro-size premiums.;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis

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