Do consumption expenditures depend on the household’s relative position in the income distribution?

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AbstractEven though the permanent income and relative income hypotheses have been introduced in past research to explain consumer behaviour, no previous attempt was undertaken to integrate them in one model. In this article, the hypotheses were synthesized into a single model. The model was empirically tested using data from the 1996 Canadian Family Expenditure Survey. The results indicate that household consumption behaviour is generally explained by both hypotheses when integrated into one model, contrary to previously treating them as mutually exclusive hypotheses.