Is the United States CPI Biased Across Income and Age Groups?

Erbas, S. Nuri; Sayers, Chera L.

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Is the United States CPI Biased Across Income and Age Groups?

IMF Working Paper No. 98/136

34 Pages Posted: 15 Feb 2006

See all articles by S. Nuri Erbas

S. Nuri Erbas

International Monetary Fund (IMF) - Middle East and Central Asia Department

Chera L. Sayers

Economic Consulting for Litigation

Date Written: September 1998

Abstract

The recent Boskin Commission Report (1996) underscores a significant upward bias in CPI measurement in the United States. This may result in excessive cost-of-living adjustment (COLA) of some entitlements in the federal budget because COLA is indexed to CPI. This paper presents some evidence that overall CPI may be biased against lower income elderly households, the primary beneficiaries of COLA. Although a downward adjustment in CPI resulting in an across-the-board cut in COLA of entitlements may yield significant budgetary savings, it may result in a deterioration in income distribution against lower income elderly households.

Keywords: CPI, COLA, income brackets, age groups

JEL Classification: E31, H53, H55

Suggested Citation: Suggested Citation

Erbas, S. Nuri and Sayers, Chera L., Is the United States CPI Biased Across Income and Age Groups? (September 1998). IMF Working Paper No. 98/136, Available at SSRN: https://ssrn.com/abstract=882696