Abstract
This paper investigated the appropriate specifications of Engel curves for non-food expenditure categories and estimated the deprivation indices of non-food needs in rural areas using a semi parametric examination of the presence of saturation points. The study used the extended partial linear model (EPLM) and adopted two estimation methods—the double residual estimator and differencing estimator—to obtain flexible shapes across different expenditure categories and estimate equivalence scales. We drew on data of the Egyptian Household Income, Expenditure, and Consumption Survey (HIEC). Our paper provides empirical evidence that the rankings of most non-food expenditure categories is of rank three at most. Rural households showed high economies of scale in non-food consumption, with child’s needs accounting for only 10% of adult’s non-food needs. Based on semi-parametrically estimated consumption behavior, the tendency of non-food expenditure categories to saturate did not emerge. While based on parametrically estimated consumption behavior, rural areas exhibited higher deprivation indices in terms of health and education expenditure categories, which indicates the need to design specific programs economically targeting such vulnerable households.
Highlights
The Engel curve is the heart of empirical demand analysis
The budget allocation patterns in rural areas reveal that food occupies the first position in expenditure categories; it holds the largest share of total expenditures, accounting for 47.25% and 34.59% of all expenditures for the poorest and the richest rural households, respectively, while the housing category ranks as the most important item
We found that the expenditure patterns of low-income households support the importance of physical sustenance that has dominated their consumption patterns
Summary
The Engel curve is the heart of empirical demand analysis. It depicts the relationship between total expenditures and a particular good or service. Determining the correct specification of an Engel curve has important implications for consumption patterns. It approximates household welfare by illustrating the gradient in welfare levels in response to changes in expenditure shares and, most importantly, estimating demographic impact on demand for essential items, and identifying equivalence scales. It provides a useful instrument for designing tax policies and assessing their impact on household welfare, which helps policymakers grant an acceptable level of welfare to low-income households [1,2,3].
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