Cost of Living Inequality during the Great Recession
Kilts Center for Marketing at Chicago Booth – Nielsen Dataset Paper Series 1-032
63 Pages Posted: 21 Feb 2015 Last revised: 20 Sep 2017
Date Written: March 1, 2017
We construct income-specific price indices for the period from 2004 to 2010. We find substantial differences across income groups that arise during the Great Recession. The annual inflation in the cost of living of the highest quartile is on average 0.59 percentage points lower than that of the lowest quartile of the income distribution. We find that product quality substitution, a margin mostly available to richer households, is the main mechanism explaining the differences. Our evidence shows that not accounting for these differences could lead to significant biases in the calculation of inequality and poverty measures.
Keywords: Cost of living, Inequality, Price Index, Shopping Behavior
JEL Classification: D12, E31, E32, I30
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