Spatial Variation in Prices and Expenditure Inequalities in Australia

Abstract

This study proposes a method of calculating preference‐based spatial price indices that measure price variation between regions. It shows how the traditional concept of the ‘true cost of living index’, used in temporal price comparisons, can also be used in spatial price comparisons. The usefulness of the proposed procedures is illustrated by applying them to Australian household expenditure data. The results show that during the past two decades spatial price variation has increased steadily, with the most recent period (2005–2009) witnessing a large increase. The results also show that the ranking of the states, on both cost of living and inequality, has altered significantly over the past two decades.