Protecting energy intakes against income shocks

Stephanie Von Hinke,George Leckie

doi:10.1016/j.jebo.2017.06.007

Stephanie Von Hinke, George Leckie

Open Access

https://doi.org/10.1016/j.jebo.2017.06.007

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Abstract

Whether and how changes in economic circumstances or household income affect individuals’ diet and nutritional intakes is of substantial interest for policy purposes. This paper exploits a period of substantial income volatility in Russia to examine the extent to which, as well as how individuals protect their energy intakes in the face of unanticipated shocks to household income. Using rich data from the Russia Longitudinal Monitoring Survey, our results suggest that households use substitution, disproportionally cutting back spending on non-foods to protect spending on foods, change the composition of the consumption basket, and increase the consumption of ‘cheaper’ calories. Taken together, however, we find that total energy intakes as well as the nutritional composition of the diet are almost fully protected against income shocks. Specifically, we find that 12–16% of the effect of permanent income shocks on food expenditures is transmitted to energy intakes, with 84–88% protected through insurance mechanisms.

Highlights

Changes in economic circumstances affect many individual and household decisions
We find that 12–16% of the effect of permanent income shocks on food expenditures is transmitted to changes in energy intakes, with 84–88% insured through the various insurance mechanisms available to individuals
The factor loadings on the permanent income shock ( ) suggest that a 10% permanent drop in income induces a 5.7% permanent drop in expenditures on food, a 7.8% drop in expenditures on clothes, and a 10.3% drop in expenditures on other goods

Summary

Introduction

Changes in economic circumstances affect many individual and household decisions. For example, sudden shocks to income affect decisions with respect to consumption (Blundell et al, 2008), health behaviours (Adda et al, 2009), and investments in children (Carneiro and Ginja, 2012). There is much interest in this relationship; its understanding is essential in evaluating how certain policies, economic circumstances or shocks impact on household resources and affect individuals’ nutritional outcomes (see e.g. Ruhm, 2000). It is crucial in informing the design of social insurance and income maintenance schemes (e.g. tax reforms, cash transfers). The average employee worked more than 40 h per week (Gorodnichenko et al, 2010) This suggests that the labour supply response to the economic reforms was limited, with little change in terms of employment rates and hours of work (see Semenova and Thompson, 2004). There were large decreases in incomes due to the vast reductions in real hourly wages of 10% per year, and wage payments were delayed three to five months on average

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Discussion

Conclusion