A Simple Taxable Income-Based Cost of Living Index

Abstract

As a means of introducing the concept of an income-based measure of the cost of living, it is useful to note that in the absence of taxes, the expenditure function and the full income compensation function correspond. That is, ${\text{e}}\left( {{\text{P, u}}} \right) \equiv \mu \left( {{\text{P, u; T}}} \right)$ where e(•) in the expenditure function defined in Chapter Three, and μ(•) is the income-compensation function defined in Chapter Four.