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

Despite a broad consensus on the need to account for the value of public services and geographical cost of living differences on the measurement of 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 accounts for differences between municipalities in the costs and capacity to produce 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 accounted for 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 geographic cost of living differences yields a misleading picture of poverty.

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Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 551.

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Date of creation: Jul 2008
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Handle: RePEc:ssb:dispap:551
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  1. Ruggeri, G C & Van Wart, D & Howard, R, 1994. "The Redistributional Impact of Government Spending in Canada," Public Finance = Finances publiques, , vol. 49(2), pages 212-43.
  2. Hill, Robert J, 1997. "A Taxonomy of Multilateral Methods for Making International Comparisons of Prices and Quantities," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 43(1), pages 49-69, March.
  3. Sen, Amartya, 1979. " Issues in the Measurement of Poverty," Scandinavian Journal of Economics, Wiley Blackwell, vol. 81(2), pages 285-307.
  4. J. Peter Neary, 2004. "Rationalizing the Penn World Table: True Multilateral Indices for International Comparisons of Real Income," American Economic Review, American Economic Association, vol. 94(5), pages 1411-1428, December.
  5. 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.
  6. Rolf Aaberge, 1999. "Samling Errors and Cross-Country Comparisons of Income Inequality," Discussion Papers 252, Research Department of Statistics Norway.
  7. Stephen Malpezzi & Richard K. Green, 1995. "What’s Happened to the Bottom of the Housing Market?," Wisconsin-Madison CULER working papers 95-16, University of Wisconsin Center for Urban Land Economic Research.
  8. Magne Mogstad & Audun Langørgen & Rolf Aaberge, 2007. "Region-specific versus country-specific poverty lines in analysis of poverty," Journal of Economic Inequality, Springer, vol. 5(1), pages 115-122, April.
  9. Raj Chetty & Emmanuel Saez, 2005. "Dividend Taxes and Corporate Behavior: Evidence from the 2003 Dividend Tax Cut," The Quarterly Journal of Economics, MIT Press, vol. 120(3), pages 791-833, August.
  10. Rolf Aaberge & Audun Langørgen, 2006. "Measuring The Benefits From Public Services: The Effects Of Local Government Spending On The Distribution Of Income In Norway," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 52(1), pages 61-83, 03.
  11. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
  12. Gemmell, Norman, 1985. "The Incidence of Government Expenditure and Redistribution in the United Kingdom," Economica, London School of Economics and Political Science, vol. 52(27), pages 335-44, August.
  13. 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.
  14. Erik Fjærli & Rolf Aaberge, 2000. "Tax Reforms, Dividend Policy and Trends in Income Inequality Empirical Evidence based on Norwegian Data," Discussion Papers 284, Research Department of Statistics Norway.
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