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The Impact of Local Public Services and Geographical Cost of Living Differences on Poverty Estimates

Author

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  • Aaberge, Rolf

    (Statistics Norway)

  • Langørgen, Audun

    (Statistics Norway)

  • Mogstad, Magne

    (University of Chicago)

  • Østensen, Marit

    (Statistics Norway)

Abstract

Despite a broad consensus on the need to take into account the value of public services and geographical cost of living differences when measuring poverty, there is little reliable evidence on how these factors actually affect poverty estimates. Unlike the standard approach in studies of the distribution of public services, this paper employs a method for valuing sector-specific local public services that allows for differences between municipalities in unit costs for providing public services. Furthermore, recipient frequencies in various demographic groups are used as the basis for determining the allocation of the value of these services on citizens of the municipalities. Geographical differences in living costs are taken into account by using municipal housing price indices or by replacing the country-specific poverty line with municipal-specific poverty lines. Applying Norwegian register data for the period 1993-2001, we find that disregarding the value of local public services and geographical cost of living differences yields a misleading picture of poverty.

Suggested Citation

  • Aaberge, Rolf & Langørgen, Audun & Mogstad, Magne & Østensen, Marit, 2008. "The Impact of Local Public Services and Geographical Cost of Living Differences on Poverty Estimates," IZA Discussion Papers 3686, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp3686
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    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General

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