<p>In general, the way to control for local price effects would be to use the Purchasing Power Parity (PPP).</p>
<p>However, in practice this is very often impossible for regions within a country due to a lack of data.</p>
<p>So in practice, we often just compare incomes across regions within a country as they are.</p>
<p>Luckily, the differences in prices within countries are often not as large as across countries, especially in small countries, so this problem tends to be less severe within countries. Of course, this may not be the case in very large countries.</p>

CC BY-SA 4.0
2022-06-27T21:46:47.870Z
2022-06-27T21:46:47.870Z
BB King
<blockquote>
<p>Is there a standard way to control for local price effects when comparing incomes across regions?</p>
</blockquote>
<p>Yes this can be done using the Purchasing Power Parity (PPP) to adjust for purchasing power differential between regions.</p>
<p>For example, <a href="https://www.bea.gov/data/prices-inflation/regional-price-parities-state-and-metro-area" rel="nofollow noreferrer">BEA</a> has data on US regions.</p>

CC BY-SA 4.0
2022-06-27T21:19:45.477Z
2022-06-27T22:00:51.300Z
2022-06-27T22:00:51.300Z
1muflon1
<p>When looking at spatial disparities across regions within a country the standard approach that I have seen is to look at differences in incomes across regions.</p>
<p>However, this doesn’t control for the impact of local prices. I would have thought we should expect to see local prices increase in areas of higher income.</p>
<p>An additional challenge must be data availability here, in that I don’t know if there is good local price data available, certainly not in the country I work. I imagine that we could use local house prices/rents as some proxy for local prices and control for this.</p>
<p>Is there a standard way to control for local price effects when comparing incomes across regions? Or at least examples of analysis where this has been done well?</p>
<p>Thanks for any help,</p>
<p>hmmm16</p>

<microeconomics><applied-econometrics><labour-economics>
Comparing incomes across regions within a country
hmmmm
# Comparing incomes across regions within a country

(Asked by: username_0 on 2022-06-27)

When looking at spatial disparities across regions within a country the standard approach that I have seen is to look at differences in incomes across regions.

However, this doesn’t control for the impact of local prices. I would have thought we should expect to see local prices increase in areas of higher income.

An additional challenge must be data availability here, in that I don’t know if there is good local price data available, certainly not in the country I work. I imagine that we could use local house prices/rents as some proxy for local prices and control for this.

Is there a standard way to control for local price effects when comparing incomes across regions? Or at least examples of analysis where this has been done well?

Thanks for any help,

hmmm16

**Tags:** microeconomics, applied-econometrics, labour-economics

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## 2 answers

### Answer by username_1 on 2022-06-27. Score: 2

In general, the way to control for local price effects would be to use the Purchasing Power Parity (PPP).

However, in practice this is very often impossible for regions within a country due to a lack of data.

So in practice, we often just compare incomes across regions within a country as they are.

Luckily, the differences in prices within countries are often not as large as across countries, especially in small countries, so this problem tends to be less severe within countries. Of course, this may not be the case in very large countries.


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### Answer by username_2 on 2022-06-27. Score: 0

> Is there a standard way to control for local price effects when comparing incomes across regions?

Yes this can be done using the Purchasing Power Parity (PPP) to adjust for purchasing power differential between regions.

For example, [BEA](https://www.bea.gov/data/prices-inflation/regional-price-parities-state-and-metro-area) has data on US regions.


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