Abstract
An important type of problem exists with price indices: the distributional impact of prices on public and private policy. Many programs funded by Federal and State legislatures call for spending over a wide geographical area. If funding formulas do not allow for differences in price level in the areas covered, low-price areas will benefit at the expense of high price areas. In an effort to overcome this problem in its educational funding program, the Florida Legislature authorized in 1972 the compilation of an index to indicate the relative price level in each of Florida’s 67 counties. This paper describes the Florida Price Level Index (FPLI), the spatial index developed to meet this need. Construction of the FPLI is an ongoing responsibility of the Florida Department of Administration, which has produced annual indices since 1972.
Highlights
Price indices such as the Consumer Price Index (CPI) produced by the Bureau of Labor Statistics (BLS) receive widespread attention and play an important role in a host of economic activities such as economic stabilization programs and wage contract negotiations
In an effort to overcome this problem in its educational funding program, the Florida Legislature authorized in 1972 the com pilation of an index to indicate the relative price level in each of Florida's 67 counties
This paper describes the Florida Price Level Index (FPLI), the spatial index developed to meet this need
Summary
The FPLI is used to equalize the purchasing power of state educa tional funds distributed to Florida's counties. I wish to thank Tony Huggins for valuable suggestions and comments on an earlier draft of this paper To measure these price differences, a market basket, defined by a set of items and the quantities of each purchased, is chosen and priced in each county. If the base county has both a low (high) relative importance and price for an item, the index will tend to minimize (maximize) price differences for the item. Even if a slightly different quality of the same generic item is priced in each outlet in the city sample, the composition of the item sample will remain constant over time, and meaningful price comparisons can be made This solution is not appropriate in con structing a spatial index since it is precisely the outlet-to-outlet com parisons that are important and the item must be identical in all out lets. Preserving this strict comparabibty is a major problem in spatial indices, and great care must be taken in writing the pricing specifica tions for each item
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