Absolute Income Hypothesis Research Articles

The Effect of Inflation and Interest Rate on Consumer Spending: Empirical Evidence from Malaysia

This study seeks to determine the exact impact of inflation, interest rate and disposable income on consumer spending in Malaysia. Although there have been few studies which explored the issue of inflation, interest rate, disposable income and consumer spending, their method, time scope and geographical location had been different. This study aims to examine the relationship of inflation (CPI), interest rate, disposable income (GDP per capita) with consumer spending in Malaysia using annual time series data from the period 1980 to 2022 and employing Ordinary Least Square (OLS) and Granger Causality to test causality relationship amongst variables. The result revealed that there is a significant negative relationship between interest rate and consumer spending. However, inflation rate has an insignificant positive effect with consumer spending. Disposable income (GDP) shows a significant positive relationship on consumer spending. In addition, the findings supported Keynesian Absolute Income Hypothesis which stated that consumption positively correlates with disposable income. The study recommends the employers of labour should make an effort to periodically raise workers' wages to reflect shifts in the macroeconomic and microeconomic conditions impacting the country. Only when wages are raised in line with the nation's economic conditions will consumers be able to improve their consumption expenditures through an increase in disposable income. Policies that lower taxes should also be developed to increase consumers' disposable income.

Determinants of Safe Water Consumption among Households in Numan Local Government Area, Adamawa State

The importance of water to man and economic growth is a yet to be exhausted in academic literature. Water can be defined as a colorless, tasteless and finite substance. A healthy population will produce a healthy workforce. A healthy work force will therefore positively contribute to the gross domestic product (GDP)in a country. It is against this backdrop, this study underscores the determinants of household water consumption and also, to examine the relationship between factors that determine household water consumption in Numan Local Government Area (LGA)of Adamawa State, Nigeria. The study sourced data using primary method of data collection through administering structured questionnaire, interview and focus group discussion. Data collected was analyzed using Ordinary Least square (OLS) model and descriptive statistics like bar charts. The study anchored on the Absolute income hypothesis introduced by Keynes. Determinants considered in the model includes income, age, expenditure on water, family size and education. The OLS result show the coefficient of income being -0.000739 suggests that a 1 unit increase in Income will lead to a 0.000739 units decrease in average quantity of water consumed, and it is statistically significant in explaining average quantity of water consumed at 5% level of significance. The coefficient of age being -1.634210 suggests that 1 unit increase in age will lead to a 1.634210 units decrease in average quantity of water consumed for the family. The coefficient of family size being 15.44506 suggests that a 1 unit increase in family size will lead to a 15.44 units increase in average quantity of water consumed. The results from the study reveal that occupation of households in the study area showing that most households are business men and women (42.7%),famers(35.4%) and civil servants(8.3%). The study concludes that water-borne disease is a major cause of death in Numan (LGA) and most LGAs in Adamawa state. The study recommends an increase in budgetary allocation to the water ministry by the state government. Furthermore, the study also, recommends sensitization to households in Numan Local Government Area and Adamawa State at large by government and stakeholders on the need to consume clean water and avoid vandalizing water infrastructures in the state.

The Impact of Property Tax on Housing Consumption An Empirical Study on the UK, the US and Japan

Real estate taxes, as a type of tax instrument, assume the role of providing local revenue and regulating the real estate market in many countries. Out of the stimulating effect of consumption on the economy, scholars studied the impact of real estate taxes on consumption. This paper constructs a model of housing consumption expenditure applying Keynes' absolute income hypothesis. Using data from Japan, the UK and the US Office of National Statistics, an empirical study is conducted through OLS regressions, fixed effects models and random effects models. The results show that real estate taxes are negatively related to residential housing consumption expenditure and that the imposition of real estate taxes significantly reduces residential housing consumption.

Economic Productivity through Net National Disposable Income

According to the Keynesian consumption function, Consumption expenditure plays a crucial role in determining the Gross Domestic Product (GDP), as evident in the Absolute Income Hypothesis. This concept has subsequently been used in developing the permanent income hypothesis and the life cycle hypothesis. However, when considering the net national disposable income after accounting for factors like net factor income from abroad, taxes, and subsidies, it becomes clear that final consumption expenditure holds a more dominant position. A gap in the existing literature arises from the historical unavailability of data, leading to the use of GDP as a proxy variable instead of net national disposable income when determining the consumption function for India. This research paper aims to address this gap by employing the net national disposable income of the Indian economy to estimate the consumption function for the period between 1994 and 2018. Additionally, it empirically tests the long-term effects of current income and current wealth (defined as past year income minus past year consumption) on consumption within the context of the Indian economy. The empirical findings provide support for a significant positive relationship between consumption and income and wealth. This is further substantiated by the significant values of the marginal propensity to consume (MPC) derived from income and wealth during the given time period. The estimated equation aligns with the life cycle hypothesis for the Indian economy, indicating that long-term, steadfast planning is crucial for improving the productive capacity of the economy, reducing poverty, and enhancing employment levels more effectively.

An Econometric Analysis of Consumption Behavior of Nepalese People

Background: Consumption is a crucial variable, influenced by level of income. The relationship between income and consumption referred as MPC. Objectives: The main objective of the study is to find the relationship between current income and current consumption at the national and local levels. Methods: During data analysis, we collected cross-sectional data (current income and expenditure) using a questionnaire from the study area. However, the time series data were obtained from a secondary source, and the econometric model was built on the absolute income hypothesis (AIH). Results: MPCs have four different values. One is for the national level, and three are for the local level. The MPCs from cross-sectional data were derived according to the high, middle, and small income levels. The national MPC is 0.0000117 and local-level MPCs are 0.55, 0.46, and 0.92. The MPC of the middle-income group and national levels were not significant however the other two are significant. Implications: The present study shows that the consumption and income relationship is stronger for high-income and low-income groups than for the middle-income and national level. However, the study was limited to rural individuals with agriculture as their primary occupation, and other factors such as debt, savings, and population size were not considered. The facts do not support the national level econometric consumption function. Therefore, we concluded that income is not the determining factor of consumption in the Nepalese perspective. Conclusions: The income level is an important factor in determining the consumption level of people. This study was carried out based on the time series and cross-sectional data. There are four marginal propensities to consume (MPC), i.e. one for the national level and three for the local level.

Influences of relative deprivation on health inequality of rural residents in China: A moderated mediation model.

Analyzing the relationship between individual relative deprivation and rural residents' health inequality is a deepening of the research on the social impact of individual relative deprivation. On the theoretical basis of the absolute and relative income hypothesis, using the data of China Family Panel Studies in 2018, taking other residents in the village as the reference group, this paper selects the relative income deprivation and absolute income to comprehensively quantify the generalized impact of farmers' income gap, introduces the psychological capital guidance mechanism, and constructs a moderated-mediation model for the impact of relative deprivation on the health inequality of rural residents in China from the three dimensions of self-assessment of health, mental health and physical health. The estimation results of the multi-layer model show that the relative income deprivation of rural residents has a significant impact on health inequality, among which the impact of mental health is the strongest. Compared with physical health, the mediated transmission of psychological capital has a more significant impact between the relative deprivation of rural residents and mental health. Compared with low-income groups, high-income residents can better alleviate the negative effect of income relative deprivation on psychological capital poverty and health inequality, and the regulatory effect on physical health is most significant. Therefore, China can improve the health of the rural poor through fiscal policies such as improving the tax system and strengthening the supervision of various government funds.

Antecedents of Livelihood Development Using Cold Chains in the Horticultural Sector of the Emerging Markets: A Systematic Literature Review

Diversification into horticulture has become the primary source of livelihood for smallholders. The study analyses trends, theories, settings, constructions, research methods, and findings based on Keynes’ “confidence theory”, the absolute income hypothesis, and the human development index. Using the Theory, Constructs, Characteristics, and Methodology (TCCM) framework, the paper offers a Systematic Literature Review of 67 scholarly research papers with fifty or more citations published between 2000 and 2021 in EBSCO, Scopus, Web of Science, and Google Scholar databases. The study advocates that a Cold Chain must be considered with the intervention of contract farming, government, cooperative or farmer-producer organisations to reap maximum benefits from horticultural production during the off-and-on seasons rather than selling to opportunistic intermediaries. The study also has important implications for future researchers and policy-makers but, most importantly, offers motivation to the investors for safe investment decisions in the cold chain infrastructure development for higher returns to producers cutting across their geographical, sociological, or economic contexts.

Empirical analysis of the economic absolute income hypothesis based on mathematical statistics

Abstract Absolute income hypothesis, as one of the most critical contents in the employment theory proposed by Keynes, is a hypothesis proposed according to the consumption level and specific changes of consumers. In mathematics to study the core of sustainable development economics, the research of scholars on the relationship between economics and mathematical tools put forward more questions, most of the research results are based on inspection absolute income hypothesis as the core, in the present theoretical basis of economics at the same time, the use of statistics to provide practical research of the required information, select effective study method combined with mathematics. In this article, therefore, to understand the traditional research methods of mathematical statistics, on the basis of absolute income hypothesis proved for the empirical analysis, and the final result proves that the mathematical tools, has a close relationship between knowledge economics, statistics, three can analysis in the organic fusion of modern economic life, the number of specific problems existing in the practice of social and economic development, Therefore, it belongs to the main direction of economic theory exploration.

THE IMPACT OF FINANCIAL TECHNOLOGY ON CONSUMPTION FUNCTION OF THE THEORY OF ABSOLUTE INCOME HYPOTHESIS: A PARTIAL ADJUSTMENT MODEL APPROACH (THE INDONESIAN EVIDENCE)

Households are economic actors that play a significant role in the economic condition. Thus, households’ consumption expenditures are a variable that deserves a through analysis in an economy. This study aims to identify the impact of financial technology on household consumption by using the theory of the absolute income hypothesis. We use the partial adjustment model (PAM) approach and the Chow test to detect the structural change on households’ consumption function in Indonesia with the observation period of 1990–2017. The results demonstrate that Indonesian households’consumption function exhibits structural change because of the development of financial technology 3.0 era that started in 2000. Besides, the partial adjustment model also suggests that financial technology positively affects Indonesian households’consumption in both short-run and long-run. The findings imply that on the one hand, the findings are a positive signal to rely on finteh as the factor that encourages economic growth in Indonesia. On the other hand, the results indicate that fintech motivates the public to be more consumptive that will potentially lead to higher inflation rates.

Income Inequality and Health Self-Assessment in Russia1

ABSTRACT This article looks at income’s effect on the health and well-being of Russians. In particular, it studies the effect of income on health self-assessments by describing the interactions between these factors, analyzing them, and modeling them econometrically. Based on panel data from the Russian Longitudinal Monitoring Survey (RLMS) of public health and economic status, a pooled generalized ordered logit regression was constructed for the categorical variable “deteriorating self-assessment of health.” It calculates the marginal effects of the model’s independent variables (different income groups, the Gini coefficient, and others) for three different self-assessments of health (good, average, and poor). Econometric modeling showed that Russia satisfies the absolute income and income inequality hypotheses and that there is a statistically significant correlation between income, its inequality (Gini coefficient of income differentiation), and self-assessment of health. It was discovered in a number of specifications that the effect of income on health self-assessment is greater in men than in women. This is apparently linked to the greater involvement of men in the labor market. The results suggest that a government policy to increase incomes and reduce regional differentiation could improve the public’s subjective perceptions of health.

SOCIO-ECONOMIC AND PSYCHOLOGICAL CORRELATES OF FASHION CONSCIOUSNESS OF CONSUMERS

Fashion conscious people allocate a large part of their budget on a latest fashion. The present study assessed the socio-economic and psychological factors that play significant role in fashion consciousness. A convenient sample of 200 individuals (men=100 and women=100) of age between 22 and 44 years from Multan, Pakistan was taken to study the correlates of fashion consciousness. The estimates of ordinary least square showed that education, monthly income, materialism, and media exposure had significant positive impact, and price consciousness had significant negative impact on fashion consciousness of the sample, which partially support consumption theories (e.g., Absolute Income Hypothesis’ and ‘Relative Income Hypothesis). The study has implications for both consumers and producers. Key Words: Fashion consciousness, materialism, price consciousness, absolute income hypothesis, relative income hypothesis

EKONOMİK DEĞİŞKENLERİN KİŞİ BAŞI SAĞLIK HARCAMASI VE DOĞUŞTA YAŞAM BEKLENTİSİ ÜZERİNE ETKİLERİ: ORTA ÜST GELİR ÜLKELERİ İÇİN PANEL VERİ ANALİZİ

Income inequality and income distribution issues are among the issues that are emphasized both in individual and national dimensions. With the increase in globalization, the interdependence of countries, income inequalities and their reasons and their reflections on different areas, especially health services, have been the subject of many studies. Literature shows that the relationship between health and income and the effect of income on basic health indicators are tested in line with income inequality and absolute income hypotheses. In this study, the effects of income inequalities and economic variables on life expectancy at birth and health expenditure per capita were analysed using panel data analysis method. This study, using 2000-2019 data, was conducted on middle-upper income and high income countries. As a result of the analysis, it was seen that public expenditure and increases in GDP level had a positive effect on primary health indicators. On the other hand, it was determined that the increase in unemployment rate and Gini index values had negative effects on health indicators. Last of all income factor both in individual and social dimensions have a significant effect on life expectancy at birth and health expenditure per capita.

Impact of Interest Rate on Household Consumption in Tanzania

This study seeks to determine the exact impact of interest rate on household consumption in Tanzania and identify the direction of causality between the variables. Although there have been few studies which explore the issue of interest rate and consumption, their method, time scope and geographical location has been different. This study aim to examine the relationship between interest rate on deposit and household expenditure in Tanzania using the annual time series data from the period 1990–2017 and employing Dynamic Ordinary Least Square (DOLS) and Granger causality test for testing causal relationship between the variables. The result revealed that there is a negative relationship between interest rate on deposit and consumption for the Tanzania. Additionally, it is observed from the estimate results that interest rate had an insignificant effect on consumption. Furthermore, the granger causality test results have shown that there is bidirectional causal relationship between interest rate and consumption. Furthermore, the result also shows that income and consumption are positively related and statistical significant at 5%. In addition, the findings supported Keynesian's Absolute Income hypothesis which emphasis consumption being a positive function of disposable income. The study recommends that there is the need for government to take urgent steps to implement policies like poverty reduction strategies, agriculture policy and Five Years Development Plans in order to improve the income base of most of households.

Personal Financial Management Practices and Demographic Factors on Financial Wellbeing of Medical Doctors Employed in Public Hospitals Nairobi County, Kenya

Financial wellbeing is very important in both a personal and organizational level. Medical doctors are among the well-remunerated workers in Kenya. However, according to Kenya Medical Association 2017 financial information, it indicates that 70% of medical doctors employed under public hospitals in Nairobi City County Kenya are struggling financially. This study sought to determine the impact of financial knowledge on financial wellbeing of medical doctors employed in public hospitals Nairobi County, to determine the effect of demographic factors on financial wellbeing of medical doctors working in public hospitals Nairobi City County, to establish the effect of financial disposition and budgeting habits on financial wellbeing of medical doctors employed in public hospitals Nairobi County, to find out the effect of financial saving behavior on financial wellbeing of medical doctors employed in public hospitals Nairobi County and to define the moderating effect of economic condition on the association between personal financial management and financial wellbeing of medical doctors employed in public hospitals Nairobi County, Kenya. This study was anchored on Keynesian absolute income hypothesis, Prospect theory, Lifecycle savings theory, Permanent income hypothesis, Relative income hypothesis, and Savings and investment hypothesis. This study used descriptive research design and data was collected from a target population of 259 doctors employed by the Nairobi City County government. The Yamane formula was used to obtain the sample size. Primary information assembly was done utilizing a semi-structured survey provided to the specialists through dropping and picking later strategy. Descriptive statistics was used to analyze the gathered information; mean, mode, middle, standard deviation, tables, figures, rates, and frequencies. The relationship between the variables was established by the use of inferential statistics. The knowledge of financial products (b=.354, t = 5.429, P<0.05), financial disposition and budgetary habits (b=.117, t = 2.397, P=.018), and financial saving behavior (b=.110, t = 5.316, P<0.05) had a positive statistically significant association with financial well-being of doctors. A unit increase in personal financial management increased financial wellness by 0.104 (b= .104, t=5.089, P<0.01) and was not moderated by the economic condition of doctors statistically significantly, P=.811. This study concluded that personal financial management was a predictor for financial wellbeing of doctors employed in public hospitals Nairobi City County. Overall, as personal financial management increased, the financial wellbeing increased. The recommendation was that training programs on financial products and diversification of investments are needed for medical doctors at the County level, as a large proportion of medical doctors did not own financial products nor attended training on personal financial management.

The Impact of Covid-19 on The Effect Multiplier on The Household Consumption Function in Jakarta

The purpose of this study is to examine the effect of a decrease in aggregate income, due to activity restrictions during the Covid-19 pandemic, on household consumption expenditure in Jakarta. The research model is based on the Absolute and Permanent income hypothesis, to see the long-term and short-term effects of changes in income on consumption expenditure. The research method is quantitative by using annual data on consumption expenditure and income at current prices for the period 2003 to 2020. The analysis model uses OLS and ECM regression. The results showed that income has a significant effect on the equation of the short-run and long-run consumption function. The short-term income crisis has an impact on the increase in the multiplier coefficient. In the short term there will also be an adjustment in consumption expenditures, according to what is postulated in the permanent income hypothesis. This indicates that in the short term expansionary fiscal policy is effective in increasing aggregate household consumption expenditure. Further research suggests adding the inflation variable as a proxy for economic conditions.
 
 Keywords: Absolute Income Hypothesis, Permanent Income Hypothesis, Household Consumption Expenditures, National Income, Multiplier.

The marginalization of absolute and relative income hypotheses of consumption and the role of fiscal policy

Contrary to Keynes’ and Duesenberry’s consumption theories, absolute or relative income plays a minimal role in the life-cycle and in the permanent-income hypotheses. It plays an even lesser role in contemporary orthodox consumption functions which are extensions of these two theories in a rational-expectations framework. As a result, the theoretical effectiveness of fiscal policy for raising output is greatly diminished. The paper argues that Keynes’ and Duesenberry’s approaches were marginalised not because of their empirical or theoretical shortcomings, but because of emphasising the psychological and social influences on consumption patterns, and because of not employing the intertemporal utility maximising framework.

Methods for testing the income-health relative hypothesis that the distribution of income in a society affects the distribution of health

Health and income relation analysis has been the subject of controversies on the absolute income hypothesis (the higher an individual's income, the better their health status) and the relative income hypothesis (individual health is affected by the distribution of income within society). In addition, the assumed relationship has been criticised as being a statistical artefact. To overcome these issues, we formulate the hypothesis that the distribution of health in a society is correlated with the distribution of income in that society and propose the analytical method framework. The method is focused on the calculation of Foster–Greer–Thorbecke (FGT) poverty indices using health and income outcomes. Econometric time series methods, particularly the autoregressive distributed lag (ARDL) cointegration bounds test and dynamic simulation, are complementary tools used to measure the relationship between the calculated indices. Applied to the sub-sample of countries below the poverty line, the method highlights the correlation between the gaps and inequalities in health outcomes and the gaps and inequalities in income outcomes, respectively.• The Foster–Greer–Thorbecke (FGT) poverty indices are applied to income and health outcomes.• Aggregate poverty indices are measured across states.• These indices are meaningful indicators for analysing the link between the distribution of health and the distribution of income in a society.

Income, income inequality and schizophrenia in China: a population-based multilevel analysis

BackgroundPrevious studies have suggested that socio-environmental factors interact with genetic risk in the genesis of schizophrenia. This study aimed to investigate the relationship between income, income inequality and schizophrenia and...

Impacts of Absolute and Relative Income on Self-Rated Health in Urban and Rural China

This study aims to assess the impacts of absolute and relative income on self-rated health (SRH) of residents in rural and urban China. Data were derived from the China Health and Nutrition Survey. Three distinct measures of relative income were considered (Gini coefficient, Yitzhaki index, and Deaton index) and computed for 3 geographic units (nation, province, and community). Nonlinear dynamic models for panel data were employed to test the absolute and relative income hypotheses. Absolute income was significantly associated with SRH among urban and rural populations. Relative income, as measured by the Gini coefficient, the Yitzhaki index, and the Deaton index, had statistically significant and negative impacts on SRH among the rural population, regardless of the reference group. For the urban population, the Gini coefficient was associated with SRH regardless of the reference group. In contrast, only the Yitzhaki index and the Deaton index at the provincial level were associated with SRH among the urban population. Our findings may provide a reference for policymakers to implement health policies designed to improve population health.

An Aggregate-Level Macro Model for the Indian Economy

We make an empirical attempt to model the Indian economy at an aggregate level with annual data, ranging from 1980 to 2019. Our major theoretical premise mimics the New Keynesian framework, which is based on the microeconomic foundations of Keynesian economics. We propose a whole economic structure in the form of nine equations. Aggregate demand is modeled with the help of four equations, representing consumption, private investment, exports, and imports. Aggregate supply assumes the form of a simple neoclassical production function where labor, capital, and exogenous technical progress are considered as inputs. Further, inflation is assumed to follow a New Keynesian representation whereas the LM curve has its standard form with income and short-term rate of interest as its determinants. Subsequently, a linking equation, expressing long-run interest rates as a function of short-term interest rates and government investment, is proposed to unify monetary policy and fiscal policy to the goods market. Finally, tax is estimated as a function of per capita income. A structural equation model is employed for the empirical analysis and findings support the theoretical expectations. Consumption follows the absolute income hypothesis, and private investment is governed by the accelerator principle. Further, the negative sign of nominal interest rates in the investment function confirms an inverse relation between the former and private capital formation. Exports are found to be influenced by world income, exchange rates, and government capital formation, and import demand is determined by domestic income, the difference between domestic and international inflation, and the lagged exchange rate. From the policy perspective, we suggest the suitability of fiscal and monetary policies for increasing growth in the Indian economy. However, the effectiveness of expansionary fiscal policy is observed to have a larger impact on growth than easy monetary policy. This inference is drawn mainly on the basis of a simulation exercise for the proposed structural equation model.