| dc.description.abstract | In this thesis, I have examined how Norwegian prices on various consumption goods and services differ from the prices in other wealthy countries in Europe. The goal has been to find out how expensive it actually is to live an average life for an average citizen in Norway.
The data used is based on European purchasing power parities study published by Eurostat. A key variable is the Price Level Index, which is an index for the price of a certain good or category of goods measured in a common unit, which makes it possible to compare price levels across countries. Another key variable is the Purchasing Power Standards, which are based on price level indices by converting these into an artificial common currency. Purchasing Power Standards (PPS) can thus be used when comparing quantities, like GDP per capita or consumption per capita, across countries.
The empirical results are based on twelve main consumption categories. These categories include both goods and services paid by the households as well as goods and services that are covered by the government. The results confirm that within most of the consumption categories, Norway does have one of the highest price levels among all the economies surveyed. These high price levels are a result of a high income level - high gross domestic product per capita and on high wages. Prices on alcohol and tobacco are exceptionally high in Norway, when compared to other economies. But on these goods, high prices are due to a political decision-making rather than being a result of economic development.
However, prices in Norway are not high for all the goods and services within the twelve categories. Both housing and other communal services as well as the communication sector are relatively inexpensive in Norway compared to the other European countries. Presumably, the reasons for that include governmental subsidies and different taxation policies. In addition, one must not forget the fact that consumers in different countries have different tastes and preferences, making the universal comparison more complicated.
As prices influence both the quantity produced and the patterns of consumption, the thesis also takes a look at to what extent prices actually influence households’ consumption expenditure based on income levels. In case of Norway, the evidence indicates that when prices are measured against households’ average gross wage, there does not seem to be any clear effect on consumption patterns. However, when prices are measured against households’ net average wages, there seems to be a slight effect on households’ consumption. Thus Norwegian income tax and social security contributions do have an impact on actual consumer demand.
The results show that for an average citizen working in Norway, it is not an expensive country to live in. This is because wages fit the prices and many of the vital services like healthcare, housing and education are partly covered by the state. | eng |