Heterogeneity in Consumer Demands and the Income Effect: Evidence from Panel Data

Mette Christensen

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Abstrakt

This paper uses unique Spanish panel data on household expenditures to test whether unobservable heterogeneity in household demands (taste, etc.) is correlated with total expenditures (income). The main finding is that tastes are indeed correlated with income for about half of the goods considered, implying that cross-sectional estimates of income elasticities for these goods are biased. The goods are the following: food eaten outside home, alcohol and tobacco, transportation, and energy. The elasticity of alcohol and tobacco is more than halved when taking unobserved heterogeneity into account. For transportation, the bias is sufficiently large to misclassify the good as a luxury.
OriginalsprogEngelsk
TidsskriftScandinavian Journal of Economics
Vol/bind116
Udgave nummer2
Sider (fra-til)335–355
ISSN0347-0520
DOI
StatusUdgivet - 2014

Emneord

  • Engel curves
  • Income elasticity
  • Unobservable heterogeneity

Citationsformater