Engel Curves Research Articles

Let's Talk About the Money: Spousal Communication, Expenditures, and Farm Production

A burgeoning body of literature highlights asymmetric information among household members. However, little is known about the source of the asymmetry and its effect on efficiency. Using a unique survey of Ghanaian households, we examine the accuracy of spousal cross reports and the effect of discrepancies on farm production. We find that information problems pertain to scale (the quantity of resources) and scope (the distribution of resources), as well as allocation decisions on the margin (Engel curves). Moreover, we find that information asymmetries lead to inefficiency in production, and the effect is equivalent to about 15% of the variation across households.

Quantile regression with censoring and endogeneity

In this paper we develop a new censored quantile instrumental variable (CQIV) estimator and describe its properties and computation. The CQIV estimator combines Powell (1986) censored quantile regression (CQR) to deal with censoring, with a control variable approach to incorporate endogenous regressors. The CQIV estimator is obtained in two stages that are nonadditive in the unobservables. The first stage estimates a nonadditive model with infinite dimensional parameters for the control variable, such as a quantile or distribution regression model. The second stage estimates a nonadditive censored quantile regression model for the response variable of interest, including the estimated control variable to deal with endogeneity. For computation, we extend the algorithm for CQR developed by Chernozhukov and Hong (2002) to incorporate the estimation of the control variable. We give generic regularity conditions for asymptotic normality of the CQIV estimator and for the validity of resampling methods to approximate its asymptotic distribution. We verify these conditions for quantile and distribution regression estimation of the control variable. Our analysis covers two-stage (uncensored) quantile regression with nonadditive first stage as an important special case. We illustrate the computation and applicability of the CQIV estimator with a Monte-Carlo numerical example and an empirical application on estimation of Engel curves for alcohol.

Cash by any other name? Evidence on labeling from the UK Winter Fuel Payment

Government transfers to individuals are often given labels indicating that they are designed to support the consumption of particular goods. Standard economic theory implies that the labeling of cash transfers or cash-equivalents should have no effect on spending patterns. We study the UK Winter Fuel Payment, a cash transfer to older households. Our empirical strategy nests a regression discontinuity design within an Engel curve framework. We find robust evidence of a behavioral effect of labeling. On average households spend 47% of the WFP on fuel. If the payment were treated as cash, we would expect households to spend 3% of the payment on fuel.

Consumption based estimates of urban Chinese growth

This paper estimates the household income growth rates implied by food demand in a sample of urban Chinese households in 1993–2005. Our estimates, based on Engel curves for food consumption, indicate an average per capita income growth of 6.8% per year in 1993–2005. This figure is slightly larger than the 5.9% per year obtained by deflating nominal incomes by the CPI. We attribute this discrepancy to a small bias in the CPI, which is of a similar magnitude to the one often associated with the CPI in the United States. This result supports the view that Chinese price statistics are reliable. Our estimates indicate stronger gains among poorer households, suggesting that urban inflation up to 2005 in China was “pro-poor,” in the sense that the increase in the cost of living for poorer households was smaller than for the average one.

Income underreporting by households with business income: evidence from Estonia

This article estimates the extent of income underreporting by households with business income relative to households of wage earners in Estonia. It uses a modified version of the methodology pioneered by Pissarides and Weber. The extent of income underreporting is estimated by comparing food Engel curves for households with and without reported business income. The baseline result is that the reported total income of households with business income above 20% of total income must be multiplied by 2.6 in order to attain the same propensity to food consumption as households of wage earners. In this sense, households with business income underreport 62% of their ‘true’ total income. Households with reported business income above 0 but below 20% also underreport income but to a lesser extent. The estimates are higher than those found for developed countries but consistent with other studies of unreported activities in transition countries.

Escaping Satiation Dynamics: Some Evidence from British Household Data

Summary The tendency of sectoral demand to satiate has long been argued to be a key driver of the structural change in an economy (Pasinetti 1981; Saviotti 2001). This literature raises the question as to what extent cross-sectional patterns of household expenditure can be used to make inferences about how the demand for goods and services will grow over time. Moreover, if indeed satiation does take place, then firms and entrepreneurs could react to this situation by innovating goods and services in order to overcome stagnation in demand growth (Witt 2001). We empirically investigate this ‘satiation-escape’ hypothesis by examining the inter-temporal dynamics of Engel curves and their derivatives, which reflect how household spending on a good changes with income. Taking into account changes in the price level, we investigate whether Engel curves that exhibit cross-section satiation tend to exhibit over time an upwards shift in the satiation level jointly with a shift in position and shape. Evidence suggests that this is actually the case.

Spatial Price Differences and Inequality in the People's Republic of China: Housing Market Evidence

The large literature on regional inequality in the People's Republic of China (PRC) is hampered by incomplete evidence on price dispersion across space, making it hard to distinguish real and nominal inequality. The two main methods used to calculate spatial deflators have been to price a national basket of goods and services across different regions in the country or else to estimate a food Engel curve and define the deflator as that needed for nominally similar households to have the same food budget shares in all regions. Neither approach is convincing with the data available. Moreover, a focus on tradable goods such as food may be misplaced because of the emerging literature on the rapid convergence of traded goods prices within the PRC that contrasts with earlier claims of fragmented internal markets. In a setting where traded goods prices converge rapidly, the main source of price dispersion across space should come from nontraded items, and especially from housing given the fixity of land. In this paper we use newly available data on dwelling sales in urban PRC to develop spatially-disaggregated indices of house prices which are then used as spatial deflators for both provinces and core urban districts. These new deflators complement existing approaches that have relied more on traded goods prices and are used to re-examine the evidence on the level of regional inequality. Around one-quarter of the apparent spatial inequality disappears once account is taken of cost-of-living differences.

Are Household Surveys Like Tax Forms? Evidence from Income Underreporting of the Self-Employed

Abstract A large literature shows that the self-employed underreport their income to tax authorities. In this paper, we quantify the extent to which the self-employed also systematically underreport their income in U.S. household surveys. We use the Engel curve describing the relationship between income and expenditures of wage and salary workers to infer the actual income, and thus the reporting gap, of the self-employed based on their reported expenditures. On average, the self-employed underreport their income by about 25%. We show that failing to account for such income underreporting leads to biased conclusions in a variety of settings.

Are Chinese Growth and Inflation Too Smooth? Evidence from Engel Curves

China has experienced remarkably stable growth and inflation in recent years according to official statistics. We use systematic discrepancies between cross-sectional and time-series Engel curves to construct alternative estimates of Chinese growth and inflation. Our estimates suggest that official statistics present a smoothed version of reality. Official inflation rose in the 2000s, but our estimates indicate that true inflation was still higher and consumption growth was overstated. In contrast, inflation was overstated and growth understated during the low-inflation 1990s. These patterns hold for the food Engel curve, and for numerous other categories, such as grain as a fraction of food. (JEL C82, E21, E23, E31, O11, P24)

English

This paper analyses the changes in food expenditure patterns over time in Egypt with special emphasis on the differences between urban and rural sectors. Engel curves for food groups are estimated by using double-log function type. The method used for estimating regression equations is the Weighted Least Squares (WLS). Data used in the study are obtained from the Household, Income, Expenditure, and Consumption Survey (HIECS) conducted by the Central Agency for Public Mobilisation and Statistics (CAPMAS) of Egypt for five  survey periods from 1990/1991 to 2009/2010. Food consumption expenditure patterns have changed over the five conseculative survey periods as a result of economic changes. Estimated expenditure elasticities for food groups are positive and less than one except for fish, milk-eggs, and fruits, as they moved up to the necessity commodities in 2009/2010. The estimated expenditure elasticities for food groups have decreased significantly over the time. There are statistically significant variations between the urban and rural expenditure elasticity of most food commodities, except for cereals, milk-eggs, fruits, and beverages. Elasticities tend to be higher in rural areas than urban ones. The expenditure elasticities of food groups are lower at high-income groups than low-income ones. These results provide the guideline for future policy implication in respect of the demand management and food consumption in Egypt. Key words: Food consumption expenditure, Engel curves, expenditure elasticity, Egypt.

ESTIMATING THE ENGEL CURVES FOR HOUSEHOLD EXPENDITURES IN JORDAN FROM 2010 TO 2011

This present study aims at estimating the Engel curves for household expenditures using data of household expenditures and income survey of Jordan for the year 2010. In order to achieve the above objective, six functional forms have been formulated and estimated. The data was grouped into nine commodity groups from the raw data which covers 13866 households from urban and rural areas. The main findings of the study are 1. The family size does not affect the demand for the Vice, Housing, Transportation and Health Commodity groups. On the other hand, the family size for the other groups is significantly different from zero which suggests that family size affect the demand for these commodity groups. 2. The family size does not affect per-capita consumption of these commodity groups. The t-test indicates that there are economies of scale only for food. 3. The consumption pattern for clothing, housing, personal care and miscellaneous commodity group, are not the same in urban and in rural areas.

Testing for Monotonicity in Unobservables Under Unconfoundedness

Monotonicity in a scalar unobservable is a now common assumption when modeling heterogeneity in structural models. Among other things, it allows one to recover the underlying structural function from certain conditional quantiles of observables. Nevertheless, monotonicity is a strong assumption and in some economic applications unlikely to hold, e.g., random coefficient models. Its failure can have substantive adverse consequences; having a test for this hypothesis is hence desirable. This paper provides such a test for cross-section data. We show how to exploit an exclusion restriction together with a conditional independence assumption, which in the binary treatment literature is commonly called unconfoundedness, to construct a test. Our statistic is asymptotically normal under local alternatives and consistent against nonparametric alternatives. Monte Carlo experiments show that a suitable bootstrap procedure yields tests with reasonable level behavior and useful power. We apply our test to study the role of unobserved ability in determining Black-White wage differences and to study whether Engel curves are monotonically driven by a scalar unobservable.

Robust estimation of nonlinear structural models

The problem is considered of identification of nonlinear error-in-variables models under conditions of a heavy contamination of the sample, including the presence of outliers (i.e., anomalous observations). On the basis of robust estimation methods, we propose a development of the algorithms of adjusted and total least squares. This has enabled us to improve the accuracy of the response prediction in the presence of outliers in the sample. The algorithms are used for constructing the Engel curve from the budget survey data. In result, we draw better conclusions about the regularities of the household behavior when the income changes.

The evolution of Engel curves and its implications for structural change theory

The tendency for expenditure Engel curves to flatten out at high income levels is frequently cited as evidence that major shifts in household spending patterns take place as households become more affluent. Empirically, little has been done to examine (i) how pervasive this tendency is across the Engel curves of different goods and services, (ii) whether the rate at which Engel curves flatten out may significantly change over time and (iii) how robust Engel curves are in the face of changes in the income distribution of households. Using data from the UK Family Expenditure Survey, we find evidence that the tendency for Engel curves to flatten out, which we dub 'saturation', is indeed widespread across a wide range of goods and services. However, a tendency for their shape to shift over time, and for these shifts to co-move with changes in the income distribution of households, casts some doubt on whether the declining slope of Engel curves can be used to predict slowdowns in the growth rate of demand for particular goods and services.

Is the Engel curve approach viable in the estimation of alternative PPPs?

Conventional estimates of purchasing power parities (PPP) rely on cross-country price data. Using Engel curves, Almas (Am Econ Rev 102:1093–1117, 2012) was, however, able to show that PPPs contain substantial bias. Since constructing conventional estimates is expensive and time consuming, Almas’ idea of employing Engel curves is welcome. This article examines the viability of the Engel curve approach to PPP and its sensitivity to differences in relative prices and preferences by estimating Engel curves not only between countries but also for regions within a given country. My empirical evidence from the United States and Norway suggests that the differences can be problematic, but not sufficiently to discredit the new methodology. A pragmatic approach to PPP estimation between countries that are different is to compute a PPP band, rather than a point estimate. I present a practical example of this using expenditure data from 2001, which yields a band for NOK and US dollar.

More or better? Measuring quality versus quantity in food consumption

As people become richer they get the opportunity of consuming more but also qualitatively better goods. This holds for a basic commodity like food as well. We investigate food consumption in Russia, taking into account both expenditure and nutrition value in terms of calories. We analyze how food consumption patterns change with increasing income by estimating both “quantity Engel curves” and “quality Engel curves.” The former describe the functional dependence of calories consumed on total expenditure. The latter trace out the dependence of price per calorie as a proxy for quality on total expenditure. We compare income elasticities of quantity with income elasticities of quality. In these Russian data for years 2000-2002 the reaction of quality to changes in income is significantly stronger than the reaction of quantity to income changes suggesting that Russian households tend to choose higher quality food items as income rises.

Optimal Commodity Taxation and Redistribution within Households

Using a collective model of consumption, we characterize optimal commodity taxes aimed at targeting specific individuals within the household. The main message is that distortionary indirect taxation can circumvent the agency problem of the household. Essentially, taxation should discourage less the consumption of a certain group of goods: those for which the slope of the Engel curves is larger for the targeted person.

Outdoor recreation – A necessity or a luxury? Estimation of Engel curves for Sweden

Income constitutes one important constraint for the degree of participation in outdoor recreation. The effect of this constraint can be measured by the income elasticity of outdoor recreation demand, which is of policy interest when the distribution of recreation opportunities across socioeconomic groups is a concern. This study investigated income elasticity of expenditures for three types of outdoor recreation in Sweden, at the individual level: outdoor recreation as an aggregated composite good, outdoor recreation close to home (less than 100km away from the permanent residence), and hunting. The findings indicated that outdoor recreation as a composite is a luxury good with elasticity in excess of unity (i.e. a relative increase in income will lead to a greater relative increase in demand). The elasticities of the specific activities were found to be lower. Outdoor recreation close to home was characterized as a necessity with elasticity less than unity (i.e. a relative increase in income will lead to a smaller relative increase in demand). The results further suggested that an increase in income could lead to either a decrease or an increase in the demand for hunting, indicating that hunting might be an inferior good or possibly a necessity. Management implicationsBased on data from national surveys in Sweden, this paper explores the relationship between income and demand for different types of outdoor recreation activities. The analysis reveals that:•The total demand for outdoor recreation opportunities can be expected to increase with increasing income levels in society. An increase in total demand does, however, not imply that demand for all types of outdoor recreation will increase simultaneously.•The relationship between income and outdoor recreation demand differs among various types of recreation activities. Outdoor recreation close to home and hunting provided two examples of such diverging patterns in this paper. This, in turn, leads to different policy implications.•Policy measures should, therefore, be adapted to the specific type of outdoor recreation under consideration.•Managers need to be aware of the underlying factors affecting demand, such as socioeconomic characteristics, substitutability, motivations and different types of constraints.•Future analysis should consider also the following factors potentially affecting outdoor recreation demand:- The distinction between recreation enjoyed during overnight trips (i.e. tourism related), as opposed to day based recreation activities where income may be less important.- The time available for outdoor recreation and the family situation.- Recreational activities must be regarded within the regulatory national framework. For example hunting in Sweden is guided by bag limits, reduced mobility because of limited access to specific hunting grounds, and specific national management of hunting opportunities.

Beyond Engel's law - A cross-country analysis

Engel's law is known to be extraordinarily consistent across time and space. To substantiate the distinction between necessities and luxuries, already Ernst Engel (1895) approached a behaviorally founded comprehensive assessment of structural changes in consumer expenditures. To build upon Engel's legacy and to complement the scarce empirical literature, a behavioral approach is applied. It is conjectured that differences in satiation patterns of universally-shared needs translate, on the aggregate level, into different shapes of Engel curves and thus also into different income elasticities of demand. Utilizing nonparametric regression techniques, it is explored whether and which expenditure categories change systematically with rising income. In line with the theoretical expectations, a number of empirical regularities in consumer expenditure patterns can be identified that go well beyond Engel's law.

Identification and Estimation of Engel Curves with Endogenous and Unobserved Expenditures

SummaryWhen dealing with the estimation of Engel curves, measurement errors in expenditure data and simultaneity are likely sources of endogeneity. In this paper we study identification of the parameters that characterize an Engel curve in the presence of both. We consider specifications where budget shares are polynomials in the logarithm of total expenditure, which is the case frequently encountered in empirical applications. We propose an estimation procedure which is an extension of that in Lewbel () and exploits a control function assumption to correct for the endogeneity of the true unobserved total expenditure. Copyright © 2013 John Wiley & Sons, Ltd.