Possibilities and limits to regional purchasing power comparisons

The Bavarian Ministry of Economics published a comparison between price and income levels of various municipalities of Bavaria based on the current monthly statistics of consumer prices. This widely disseminated official publication gained much attention and served to plead a cause in the German constitutional court. It then turned out that it was highly objectionable from a methodological point of view. The present paper not only collates the shortcomings of the ministerial publication it also presents alternative statistical results and some considerations about the methodological requirements and the feasibility of estimating valid regional purchasing power parities. Reprinted by permission of Vandenhoeck & Ruprecht