Banks, J;
Blundell, R;
Lewbel, A;
(1997)
Quadratic engel curves and consumer demand.
REV ECON STAT
, 79
(4)
527 - 539.
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Abstract
This paper presents a model of consumer demand that is consistent with the observed expenditure patterns of individual consumers in a long time series of expenditure surveys and is also able to provide a detailed welfare analysis of shifts in relative prices. A nonparametric analysis of consumer expenditure patterns suggests that Engel curves require quadratic terms in the logarithm of expenditure. While popular models of demand such as the Translog or the Almost Ideal Demand Systems do allow flexible price responses within a theoretically coherent structure, they have expenditure share Engel curves that are linear in the logarithm of total expenditure. We derive the complete class of integrable quadratic logarithmic expenditure share systems. A specification from this class is estimated on a large pooled data set of U.K. households. Models that fail to account for Engel curvature are found ro generate important distortions in the patterns of welfare losses associated with a tax increase.
Type: | Article |
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Title: | Quadratic engel curves and consumer demand |
Open access status: | An open access version is available from UCL Discovery |
Keywords: | SYSTEM, RANK |
UCL classification: | UCL UCL > Provost and Vice Provost Offices > UCL SLASH UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics |
URI: | https://discovery.ucl.ac.uk/id/eprint/14165 |
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