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Estimating flexible consumption functions for urban and rural households in China

Author

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  • Cao, Jing
  • Ho, Mun S.
  • Hu, Wenhao
  • Jorgenson, Dale

Abstract

There are few comprehensive studies of household consumption in China that covers all commodities due to data restrictions. This prevents the calculation of inequality indices based on consumption. This lack of coverage also makes analysis of policies that affect consumption difficult; economy-wide models used for analysis often have to employ simple consumption forms with unit income elasticities. We estimate a translog demand system distinguished by demographic characteristics, giving price and income elasticities that should be useful for policy analysis. We estimate separate functions for urban and rural households using household expenditure data and detailed commodity prices (1995–2006). This allows future analysis of social welfare and inequality based on consumption to supplement existing studies based on income. To illustrate an application of the model, we project consumption composition based on projected prices, incomes and demographic changes – aging, education improvement and urbanization.

Suggested Citation

  • Cao, Jing & Ho, Mun S. & Hu, Wenhao & Jorgenson, Dale, 2020. "Estimating flexible consumption functions for urban and rural households in China," China Economic Review, Elsevier, vol. 61(C).
    • Handle: RePEc:eee:chieco:v:61:y:2020:i:c:s1043951x2030050x
    DOI: 10.1016/j.chieco.2020.101453
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    More about this item

    Keywords

    Consumption demand functions; China; households;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • R22 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Other Demand

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