Wage and Nonwage Income-Based Measures of the Cost of Living in the Absence of an Income Tax

Abstract

In this section we examine income-based measures of the cost of living in the absence of an income tax. Recall that, from the budget constraint in the absence of an income tax, \({\text{y + P}}_{\text{0}} \delta = P \cdot X\), so that \({\text{y}} = {\text{P}} \bullet {\text{X}} - {{\text{P}}_0}\delta\).