An annual cost of living index for the American states, 1960-1995

An enormous amount of research on state politics and policy relies on monet ary variables. Such variables are affected by differences in the purchasing power of a dollar over time and across states, but a lack of information a bout geographic variation in the costs of goods and services has kept socia l scientists from taking these differences into account. We remove this obs tacle by constructing an annual cost of living index for each continental A merican state from 1960 to 1995. The index constitutes a deflator suitable for cross-sectional, time-series, and pooled research. After establishing t he reliability and validity of our index using a battery of diagnostic test s, we illustrate the importance of deflating monetary variables by examinin g two variables that are often used in state politics research.