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Expenditure patterns, heterogeneity, and long-term structural change

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  • Clements, Kenneth
  • Mariano, Marc Jim
  • Verikios, George

Abstract

Distinguishing household groups when estimating the linear expenditure system (LES) has substantial advantages. Using an Australian household survey to estimate the LES, we show that allowing for household heterogeneity improves the model's predictions and its economic properties. Computable general equilibrium (CGE) model simulations reveal that allowing for heterogeneity of consumers opens up a new possible driver of long-term change in the economy's composition. The simplicity and parsimony of the LES account for its popularity, particularly in CGE models. The results underscore the practical importance of the disaggregated approach.

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  • Clements, Kenneth & Mariano, Marc Jim & Verikios, George, 2022. "Expenditure patterns, heterogeneity, and long-term structural change," Economic Modelling, Elsevier, vol. 113(C).
    • Handle: RePEc:eee:ecmode:v:113:y:2022:i:c:s0264999322001341
    DOI: 10.1016/j.econmod.2022.105888
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    More about this item

    Keywords

    Heterogeneity of consumer behavior; Engel curves; Linear expenditure system; CGE models; Structural change;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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