Standard cost-of-living indexes assume that preferences are homothetic, ignoring the well-established fact that tastes vary with income. This paper considers how assuming homotheticity biases our estimates of spatial price indexes for consumers at different income levels. I use Nielsen household-level purchase data in over 500 categories of food products to calculate micro-founded income- and city- specific price indexes that account for non-homotheticity, as well as city-specific price indexes that do not. I find that the income-specific cross-city price indexes vary widely across income groups. Grocery costs are 20 percent lower in a poor city relative to a wealthy city for a low-income household, but they are 20 percent higher in the poor city for a high-income household. The homothetic price indexes perform well in predicting the cross-city variation in prices for low- and middle-income households, but poorly for high-income households. These results suggest that using homothetic cost-of-living indexes understate the relative price level in poor locations for rich households.
1010 Affordable Housing Amazon Amenitization Architecture Artificial Intelligence Asia Australia automation Autonomous Vehicles Borrowing Constraints Brexit California Canada Capital Business China Co-Working Environment coastal markets Colombia Commercial Brokerage Commercial Real Estate commissions Congestion consumer bias covid-19 CRE credit card market Credit Default Swaps Credit Insurance Credit Risk Transfers Culture Data Analytics Data Collection Technology Debt Market Demand Demographics Density Development Discrete Choice disruption Diversity drones e-Commerce Economic Corridors economic policy economics Equity Funds Equity Market Ethnic Factors Europe Fannie Mae financial asset management Foreclosures Foreign Policy France Freddie Mac general equilibrium Global Global Financial Crisis Globalization great depression Great Recession Hedonic Housing & Residential housing boom Housing Disease housing prices Housing Supply Identity Income Inequality India Inter-generational mobility Investing jobs labor market Lagging Regions land use regulation Language Macroeconomics malls Market Pricing megacities Microeconomics Migration Minimum Payments Mixed-Use Mobility moral hazard mortgage insurance mortgage market Mortgage Rates Mortgages Multi-family Nation Building Non-Traditional Mortgages Office Market office sector Placed Based Policies Political Risk Price Discovery Private Equity Business public health Public Schools real estate brokerage Real Estate Investment Real Estate Investment Trusts Recession Rental Retail Retirement reverse mortgages Risk Adjustment risk-shifting robotics single family housing Slums Sorting South America Spatial Regions spillover effect Sub-Prime Mortgages Sustainability Technology trade transportation United States Urban Urbanization Warehouse welfare