Board of Governors of the Federal Reserve System

07/07/2025 | Press release | Distributed by Public on 07/07/2025 15:44

Lost in Aggregation: Geographic Mismeasurement of Income and Spending

July 2025

Lost in Aggregation: Geographic Mismeasurement of Income and Spending

Sinem Hacioglu-Hoke, Leo Feler, and Jack Chylak

Abstract:

Using zip-code median income as a proxy for household income is common in economics but can mask heterogeneity and yield misleading conclusions. Using zip-code median income and self-reported household incomes from a representative panel of 150,000 U.S. households, we decompose average retail spending for 2018-2024. When using self-reported incomes, we observe substantial divergence in spending between low- and high-income households starting in mid-2021. When using zip-code aggregates as a proxy, this divergence disappears. Our findings indicate a 35 to 75 percent discrepancy between zip-code aggregates and self-reported incomes, highlighting the limitation of zip-code aggregates as a proxy for household incomes.

Keywords: Spending, Income, Heterogeneity, Zip-code Average Income

DOI: https://doi.org/10.17016/FEDS.2025.050

PDF: Full Paper

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