An empirical test of homogeneity and symmetry in a demand system with taste changes

Abstract

The objectives of this paper are twofold: to examine the law of demand and to examine the possibility of changing demand empirically in the era of high economic growth of the Japanese economy. The homogeneity and symmetry conditions of the Slutsky equation are important in testing the correspondence between demand functions and utility functions. These restrictions are tested in this paper. It is found that homogeneity, symmetry, and the joint restrictions of homogeneity and symmetry, are empirically supported by a consistent data set based on the National Accounts when taste changes are introduced. In Japan, the period of observation includes the era of high economic growth during the 1960s and is thus an especially appropriate period for observing a dynamic shift, specified as a time trend, in consumption patterns.