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Demographic vs. Expenditure Flexibility in Engel Curves

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  • Stengos, T.
  • Lyssiotou, P.
  • Pashardes, P.

Abstract

We consider the effects of demographic and expenditure variables on consumer demand in a system of Engel curves using a smooth coefficient semiparametric model where the expenditure effects on the budget shares vary nonparametrically with demographic variables such as the age of head and number of children in the household. Our findings, based on UK micro data, suggest that with a smooth coefficient semiparametric model there is no need for nonlinear logarithmic expenditure effects in the budget shares. Furthermore, we find evidence of a trade-off between demographic and expenditure effects in Engel curves and that a rank-2 system of Engel curves where the logarithmic expenditure effects are allowed to vary with demographic characteristics either nonparametrically or as a third degree polynomial function cannot be rejected against a rank-3 (quadratic logarithmic) model. The implications on household behaviour and welfare are also examined.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Stengos, T. & Lyssiotou, P. & Pashardes, P., 2002. "Demographic vs. Expenditure Flexibility in Engel Curves," Working Papers 2002-15, University of Guelph, Department of Economics and Finance.
    • Handle: RePEc:gue:guelph:2002-15
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    1. Hausman, J. A. & Newey, W. K. & Powell, J. L., 1995. "Nonlinear errors in variables Estimation of some Engel curves," Journal of Econometrics, Elsevier, vol. 65(1), pages 205-233, January.
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    3. Li, Q. & Wang, Suojin, 1998. "A simple consistent bootstrap test for a parametric regression function," Journal of Econometrics, Elsevier, vol. 87(1), pages 145-165, August.
    4. Stephen G. Donald, 1997. "Inference Concerning the Number of Factors in a Multivariate Nonparametric Relationship," Econometrica, Econometric Society, vol. 65(1), pages 103-132, January.
    5. James Banks & Richard Blundell & Arthur Lewbel, 1997. "Quadratic Engel Curves And Consumer Demand," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 527-539, November.
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    JEL classification:

    • D1 - Microeconomics - - Household Behavior

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