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At What Price?: Conceptualizing and Measuring Cost-of-Living and Price Indexes
compare trends for experimental Laspeyres, Paasche, and Fisher price indexes for 1984-1994.
Garner et al. (1996) found only slight differences between price trends produced by the experimental price index for the poor and the full sample CPI-U. Using 1984 as the base year, the 1994 all-consumer unit Laspeyres is 141.1; the reweighted indexes for the poor range from 139.8 to 140.7, depending on which definition is used. The Paasche and Fisher indexes vary from the all-consumer index by a similar magnitude.18 The authors conclude that “the poor and the general population have faced similar trends in relative prices over the last several years” (p. 41). In addition to being time specific, they further qualify the results to acknowledge data limitations—e.g., the large share of rural poor do not figure into the calculations and the possible existence of asymmetric substitution opportunities in poor versus high-income consumption bundles.
Michael (1979) empirically examined the effect of demographic factors on price indexes and estimated the statistical significance of the correlation between the two. Using individual-level records from the 1960-1961 CEX, he regressed Laspeyres index values against household demographic characteristics. The equation produced a number of significant coefficients, but no clearly discernable variation between the inflation rates faced by specific income groups and the population sample as a whole. There was no obvious relationship between household income and relative position in the distribution of index values over time. In a similar study, Hagemann (1982) looked at group variation in Laspeyres indexes. The study generated some evidence indicating slightly higher inflation for poorer households, but, again, the results were generally statistically insignificant.
In additional BLS research, Kokoski (1987) constructed a superlative Tornqvist index in order to examine income-specific effects for the period 1972-1980. Differences across groups were generally small and insignificant. Blank and Blinder (1986) round out the available evidence. As part of their investigation into income distribution and poverty and commodity purchase patterns by the poor, they conclude that price inflation faced by the poor was similar to that faced by the general population over the period 1947-1982.
The balance of the evidence, then, points to either modest or no variation in inflation rates faced by different income groups, particularly for more recent periods. Consumption patterns—specifically the relative weights of necessity versus luxury items—may be different, but the differences do not translate into consistently bifurcated subindex growth rates. Even if there is wide-ranging price
The paper also includes estimates of substitution bias, computed as the difference between the Fisher ideal and Laspeyres indexes. Substitution bias was estimated to be 1.99 percent for all consumer units, 1.75 percent for the income poor, 2.01 percent for the expenditure poor, and 0.25 percent for the program participation poor.