National Expenditures on Local Amenities

July 2013

This paper offers a methodology for estimating indirect amenity expenditures that is consistent with principles of national accounting and fundamentals of spatial sorting behavior. 

A significant fraction of GDP is generated by implicit expenditures on nonmarket amenities  such as climate, public goods, urban infrastructure, and pollution. Households pay for the localized component of these amenities indirectly, through spatial variation in housing prices, wages, and property taxes. In this paper, we develop a methodology for estimating indirect amenity expenditures that is consistent with principles of national accounting and fundamentals of spatial sorting behavior. We construct a county-level database of 75 amenities, match it to the location choices made by 5 million households, and develop the first estimates for implicit amenity expenditures in the United States. We find that expenditures exceeded 8% of personal consumption expenditures in the U.S. during 2000 ($562 billion). Our estimates also reveal significant regional variation in the expenditure share for nonmarket amenities, with households in the Pacific giving up the largest fraction of their potential income to consume localized amenities (17%) and households in the West South Central region giving up the smallest fraction (6%).