Estimates Of Income Elasticities Research Articles

Thirlwall’s Law: An Application to Poland

The present study validates assumptions of Thirlwall’s law and illustrates its implication for Poland. Furthermore, a rarely used “strong” form of Thirlwall’s law is tested. This law reflects the importance of trade balance restrictions on economic growth prospects. This aspect is now very relevant. The research aims to find out whether both forms of Thirlwall’s law are valid in Poland. The assumption that the relative prices do not influence trade performance of Poland does not hold, therefore, influence of terms of trade was considered and the balance of payments (BOP) constrained growth rate was calculated with and without terms of trade effect. For the “strong” form of Thirlwall’s law, the existence of correlation between growth of income of Poland and the rest of the world was tested. The existence of cointegration between rates of growth of export and gross domestic product (GDP) is tested as a main idea of growth model based on export. After verifying that all assumptions of the model hold, Autoregressive Distributed Lag (ARDL) cointegration approach and error correction model are applied to estimate income elasticities. Further, statistical equality of growth rates of predicted and real GDP was tested to validate Thirlwall’s law, and it supports the importance of external imbalances for Polish economy for the period between 1995 and 2018. Both “weak” and “strong” forms of Thirlwall’s law turned to be valid. Further research may focus on testing the validity of assumptions of Thirlwall’s law on data from other countries of Eastern Europe, as well as post-Soviet countries, since there are very few such studies to date.

Role of alcohol taxes in moderating alcohol consumption: Current and future potential impacts.

There is a substantial literature on the price elasticity of demand for alcoholic beverages, but the literature on the tax elasticity and the way tax rates impact the evolution of alcohol consumption through time is more limited. A two-level Bayesian hierarchical model is used to estimate tax and income elasticity values. The estimates from five different forecast methods are then averaged, and combined with the tax elasticity estimate, to investigate consumption for different scenarios. The sample consists of 30 high-income and upper-middle-income countries. The alcohol tax elasticity estimate is approximately -0.4 and the alcohol income elasticity estimate approximately 0.2. If alcohol taxes evolve the way they have in the past, there is little evidence to suggest that per capita alcohol consumption will be higher in 2027, relative to 2017; but if alcohol taxes remain constant over the next decade, it is likely that per capita alcohol consumption will be notably higher in 2027, relative to 2017, for the sample of countries considered. There is a natural tendency for alcohol consumption to increase with income. A working rule of thumb that can be used by policy makers to mitigate this effect is to increase alcohol tax rates at approximately half the long-run gross national income growth rate. For rich countries, this implies annual increases of approximately 1.0-1.5% in alcohol taxes.

Household level heterogeneity in the income elasticities of demand for international leisure travel

This article deepens the understanding of household level heterogeneity of income elasticities of demand for international leisure travel. This is done through the use of Swedish household level expenditure data which together with censored quantile regression allows for estimation of income elasticities based on relative consumption levels. In addition, an analysis of how the distribution of income elasticities was affected by the 2008 financial crisis is made. Results show a great heterogeneity in the estimated income elasticities, with income elasticities being the largest for the households who consume relatively little of the good, and a small positive effect of the financial crisis on the estimated distribution of income elasticities. These results can be used by policy makers, as well as managers in the tourism industry, to predict and influence the demand of international tourism at a more detailed level. The results also go in line with theoretical predictions and give further insight in market penetration as well as an ongoing structural change in the demand for international tourism.

The role of income and substitution in commodity demand

Abstract We estimate income elasticities of demand for three energy and six base metal commodities and their group aggregates. The elasticities, which vary with income levels, are estimated using a panel autoregressive distributed lag model covering the period 1965–2017, for up to 63 countries. We report three findings. First, most income elasticities are inversely proportional to income and decline rapidly as income rises. This implies commodity demand growth slows as economies develop, consistent with the dematerialization hypothesis. At median per capita income levels, the elasticity for metals (in aggregate) was 0.9, while that of energy was 0.7. Second, there is significant heterogeneity between commodities, both in terms of income elasticities and in terms of the performance of the model, with larger commodities and group aggregates performing better. Finally, we find evidence of substitution between commodities (e.g. oil/coal, aluminum/copper), estimated by the inclusion of the prices of similar commodities.

Household Demand Analysis for Pakistan: Recent Evidence

The objective of this study is to analyze household demand system for Pakistan by estimating various elasticities of demand. This study combines nine different rounds of Household Integrated Economic Survey data to estimate Almost Ideal Demand System (AIDS). Household level data are supplemented with rich price information available for all the twelve months of the nine years. This approach yields efficient estimates of income and price elasticities, which are non-linear combinations of the parameters of AIDS. Standard errors for all the elasticity estimates are computed on the basis of Monte-Carlo simulations. The results show that household demand responses to income changes are similar between rural and urban households, while the response to price changes differ considerably. On average, rural households are found to be more responsive to price changes than the urban households. The study recommends that on equity grounds transport and communication and miscellaneous non-food goods and housing can be taxed more heavily as compared to other goods.

Demand for Meat in Indonesia: Censored AIDS Model

This study estimates the demand for meat in Indonesian urban households encompassing beef, goat, broiler chicken, and native chicken. We estimate the demand for meat using cross-sectional data from the 2013 Indonesian Socio-Economic Household Survey data, which records food expenditure for a week before the survey. Because of some zero expenditure, the Censored Almost Ideal Demand System (AIDS) using the consistent two-step estimation is applied. The estimated own-price elasticities indicate that all meat products are price-inelastic. Nonetheless, broiler chicken is the most responsive meat product while goat is the least responsive meat product to price changes. All meat products are normal good referring to the estimated income elasticities. However, Native chicken is the most responsive and goat is the most unresponsive to the income change. The estimated cross-price elasticities conclude that broiler chicken and beef are substitute goods. The policy simulation indicates that beef is a meat product that is unresponsive to price and income changes. Native chicken is the most responsive meat product to price and income change, followed by broiler chicken.

Impacts of household income on beef at-home consumption: Evidence from urban China

Beef consumption in China has increased substantially from 5.0 million tons in 2000 to 7.7 million tons in 2019 thanks to rapid income growth, but still remains low compared to pork and poultry consumption. Improving the understanding about the impacts of household income on beef consumption in China is necessary to forecast future beef demand and inform the domestic beef industry, especially in the context of unprecedented expansion of middle income class in China. Based on survey data of 32 878 urban households collected by the National Bureau of Statistics of China, we employed the inverse hyperbolic sine (IHS) double-hurdle model to estimate income elasticities of beef demand across different income groups and simulated possible trends of future beef consumption of Chinese urban residents. The empirical results showed that the unconditional income elasticities of beef consumption at home vary between 0.169 for the low-income group and 0.671 for the high-income group. The simulated results indicated that beef consumption is expected to increase by 12.0 to 38.8% in 10 years and by 18.6 to 70.5% in 15 years under distinct income growth scenarios. Our findings provide practical insights for policy makers and other stakeholders about future beef demand, such as potential opportunities embedded in rising beef demand for domestic producers and world beef exporters as well as the urgency of improving the supply chain resilience of beef in China.

Income and energy consumption in Asia-Pacific countries – A panel cointegration analysis enhanced with common factors

The research presented in this paper re-examines the relationship between energy consumption and income for a panel of Asian economies for the period 1971–2018. The Asian economies represent a dynamic, diverse, and interesting set of countries on which to base an examination of these relationships and the tendencies for these economies to be on a path of convergence and integration in their energy consumption and use characteristics. Our convergence analysis provides evidence of convergence in energy intensity among the countries. Panel data methodologies are employed to gain the advantage of increased explanatory power of the econometric analysis. Importantly, we incorporate common factors as a means of accounting for variables beyond the bivariate relationship. The results find support for the flow of causality running from income to energy consumption, albeit with short-run feedback. As a result, current policies aimed at reducing energy intensity and CO2 emissions are not expected to significantly inhibit economic growth. The results are consistent with the seminal paper by Kraft and Kraft (1978). Additionally, we find the long-run income elasticity estimates for the panel double in size when unobserved common factors are excluded.

Price and Income Elasticities of Natural Gas Demand in Egypt: A Bound Test Approach

AbstractThis paper provides short and long-run estimates of price and income elasticities of Egypt’s natural gas demand using the ARDL bounds testing approach to cointegration over the period 1983–2015. The results show that the long-run income and price elasticities, in absolute values, are greater than their counterparts in the short run. This result is due to the fact that consumers can modify their consumption habits and plans in the long run as a response to changes in the income or the price. Moreover, natural gas demand is more responsive to changes in income than changes in price in both the short and long run. Finally, the study examines the causality relationship between natural gas consumption and economic growth for the gas-consuming sectors in Egypt. The results indicate that there is no causal relationship between the two variables for the electricity, petroleum, and household sectors in the short-run. By contrast, there is a unidirectional causality running from natural gas consumption to the economic activity of the transportation sector and a unidirectional causality running from economic activity to natural gas consumption by the industry sector.

Estimation of price and income elasticity of residential water demand in the Czech Republic over three decades

AbstractThis paper contributes to residential water demand literature by providing price and income elasticity estimates for a country which has undergone deep structural, institutional and economic changes. We analyze short‐run and long‐run residential water demand using household‐level data for the Czech Republic for the period of 1993–2016, during which the price of water nearly tripled, consumption decreased by a third, and families became considerably richer. Our estimates of price and income elasticity indicate low responsiveness of households to changes of these factors. Income elasticity is about +0.16 and it is robust across models. The short‐run price elasticity is about −0.22, on the low end of estimates derived for other developed economies. Long‐run price elasticity is around −0.30. While households were more price responsive during the period of economic transformation, they became completely unresponsive during the later economic boom.

Estimation of Price and Income Elasticity of Water: A Case Study of Darjeeling Town, West Bengal, India

Estimation of Price and Income Elasticity of Water: A Case Study of Darjeeling Town, West Bengal, India

Health Expenditure and GDP Growth in Botswana

Botswana has always been recognised as an economically stable and upper middle income country in Sub- Sahara Africa, very often celebrated as a model economy for its prudential fiscal management. In 2009 Botswana become one of the few countries which have met the Abuja targets in per capita health expenditure. Amidst a high literacy rate and reasonably high economic growth, health expenditure being the highest among the SADC countries, Botswana has the HIV/AIDS prevalence which is one of the highest in the African continent. A stable relationship between health expenditure growth and income growth is crucial for health policy formulation. Four issues associated with health expenditure in the estimation of income elasticity which have not been adequately addressed in earlier studies are role of technology, heterogeneity of the health expenditure, treatment of structural break and dynamic aspects of health expenditure. This paper attempts to address these issues while estimating the income elasticity of health expenditure for Botswana considering both macro-data for 1981-2016, and micro-data drawn from the Household Income Expenditures Surveys, 1993/94 and 2003/04 according to residence status. Our results for Botswana indicate that the health care is a necessity at least in the short run. This is in contrast to the available evidence for other countries especially among upper middle income and in Africa.

The income elasticity of import demand: A meta‐survey

AbstractImport demand has been a major research topic in international economics for the past 80 years because of its importance for analyzing trade and evaluating trade policies. The goal of this paper is to survey the literature and conduct a meta‐analysis of empirical studies on import demand with the intention of clarifying the effect of economic development on income elasticity. In particular, we test the hypothesis that higher income levels are associated with a more elastic import demand. We apply a combination of parametric and non‐parametric methods on estimates from a sample of 152 papers published over the period 1975–2014 and find that this relationship is significant and robust. Specifically, kernel densities of income elasticity estimates for high‐income countries in North America and Europe are shown to exceed those for poorer parts of the world. The results from quantile regressions confirm this pattern and establish its robustness when controlling for the effect of model specifications.

Dynamic behavior of transport fuel demand and regional environmental policy: The case of Portugal

<abstract> <p>Despite the increase in electric mobility, fossil fuels still dominate the transport sector. For a sustainable management of these fuels, environmental policy plays a significant role. It is key to know if higher taxes are effective to moderate demand, which will depend on demand elasticities. While price elasticities determine the effectiveness of higher taxes, income elasticities are important for macroeconomic policy considerations. Furthermore, in dynamic societies and economies, it is possible that elasticities change over time or as a response to certain events, determining the need to adjust policies. We study the case of a small, open economy, highly dependent on fuel imports: Portugal. Our estimation of price and income elasticities for gasoline and diesel demand control for breakpoints and uses a dynamic perspective. The period covered (1995–2015) includes important macroeconomic events, such as the fuel market liberalization and a severe economic crisis. Results for the whole period show that long-run price elasticities are −0.368 for diesel and −0.911 for gasoline. Hence, taxes are more effective to moderate gasoline demand than diesel demand. Long-run income elasticities are 2.338 for diesel and 0.877 for gasoline, demonstrating the strong dependence of diesel consumption on the level of economic activity. The breakpoint analysis indicates that contrarily to the fuel market liberalization process, the economic crisis impacted elasticities. Furthermore, we find variability in elasticities around the period of the economic crisis, which justifies the need for a flexible policy. Dynamic policies can use specific periods as opportunities to promote technical and behavioral desirable changes.</p> </abstract>

The dynamic impact of income and income distribution on food consumption among adults in rural China

Previous studies have demonstrated that income has a significant effect on food demand in rural China. However, little research has focused on the dynamic impact of income and income distribution on food demand in rural China. Using China Health and Nutrition Survey data, this study employs a consistent two-step quadratic almost ideal demand system model, with addressed problems of endogeneity of total expenditure and zero shares, to estimate the food demand elasticities among adults in rural areas with regard to the different income strata. The results show that changes in income and income strata have significant effects on food demand in rural areas. Except for grains, all other food groups, including vegetables, oils and fats, animal products, and other foods, have positive income elasticities, and the rise in the income strata will lead to declining income elasticities for grains, vegetables, oils and fats, and animal products. Based on the estimated income elasticities, the food consumption projections indicate that reducing income inequality in rural society can improve the living standard of low-income people in terms of nutrient intakes.

How Well Do Automated Linking Methods Perform? Lessons from U.S. Historical Data.

This paper reviews the literature in historical record linkage in the U.S. and examines the performance of widely-used record linking algorithms and common variations in their assumptions. We use two high-quality, hand-linked datasets and one synthetic ground truth to examine the direct effects of linking algorithms on data quality. We find that (1) no algorithm (including hand-linking) consistently produces representative samples; (2) 15 to 37 percent of links chosen by widely-used algorithms are classified as errors by trained human reviewers; and (3) false links are systematically related to baseline sample characteristics, showing that some algorithms may induce systematic measurement error into analyses. A case study shows that the combined effects of (1)-(3) attenuate estimates of the intergenerational income elasticity by up to 20 percent, and common variations in algorithm assumptions result in greater attenuation. As current practice moves to automate linking and increase link rates, these results highlight the important potential consequences of linking errors on inferences with linked data. We conclude with constructive suggestions for reducing linking errors and directions for future research.

Urban household consumption in China: Price, income, and demographic effects

AbstractGiven the government’s goals to restructure the economy away from investment and exports to consumption and to reduce inequality, it is important to have a good understanding of China’s household consumption behavior and to obtain a good measure of consumption adjusted for price differences across regions. We estimate a consumption function that is flexible and distinguishes between different household types such as size and age of head. We develop detailed price data by region, including rental equivalents for owner‐occupied housing. This provides us the estimates of income and price elasticities of different consumption bundles that should be useful for analyzing public policies. We find distinct elasticities for residents of large and small cities. For all urban households the income elasticity for food is about 0.7–0.8, housing is 0.8–0.9, and services is 1.4–1.5. The price elasticity for food and services is about 0.5 and 0.8, respectively.

Exploring Water Consumption in Dhaka City Using Instrumental Variables Regression Approaches

This paper explores water consumption in Dhaka city for better understanding of its usage, and considers the implications of findings from distributive rationale. Using 459 household survey data collected by BRAC Institute of Governance and Development (BIGD), this study estimates income elasticities of water consumption after controlling the effects of other covariates including wealth-proxies, location, household size, water bill and spatial zones using the instrumental variable regression (IVREG) and instrumental variable quantile regression (IVQREG) approaches. The latter has an additive advantage over the former as the IVQREG provides a more accurate picture of the relationship of water consumption with the income throughout the entire water consumption distribution. Using the fixed pay variable as instrument, findings reveal the strong evidence that income is endogenous. The IVQREG results show that income elasticities are heterogeneous and vary significantly across the water quantiles, implying inequality in water consumption. It also provides strong systematic evidence as income elasticity of water consumption decreases with the increase in percentile. Significant spatial inequality in water consumption from IVREG approach disappears as we use IVQREG. This also strongly supports the systematic evidence obtained. Therefore, it is imperative to introduce different tariff structures among different water consumer groups for bringing equity in water consumption and revenue generation. However, Dhaka Water Supply & Sewerage Authority (DWASA) must ensure smart water meter before implementing such tariff structure as we face severe challenges while measuring residential water consumption.

The FDI-CO2 nexus from the sustainable development perspective: the case of Azerbaijan

ABSTRACT The current study explores the effect of Foreign Direct Investment (FDI) on CO2 emissions in Azerbaijan utilizing time series data spanning from 1996 to 2013. The structural time series modeling (STSM) approach is employed in empirical estimations. The STSM framework allows parameters to evolve over time. Estimation results show that the coefficients of FDI and income are time-varying. The impact of FDI is positive before 2006 and negative after that year, while the income elasticity is positive for the entire period. The estimated income elasticity allows to conclude that the EKC phenomenon does not hold for the case of Azerbaijan. The different effects of FDI on CO2 emissions, possible explanations and related policy implications are discussed.

Price and income elasticities of electricity in China: Estimation and policy implications

AbstractChina has been reforming the energy sector, especially the electricity industry. One of the important aims is to reform the cross‐subsidies (the industrial sector has been subsidizing the residential sector for decades), which requires policy‐makers have a good understanding of price and income elasticities of electricity. However, few studies have estimated China's price and income elasticities of electricity, partly due to limited micro data. This study estimates price and income elasticities of electricity in China using AIDS (almost ideal demand system) demand model, which is consistent with consumer theory and more flexible than other regression models. The AIDS demand model is estimated using provincial‐level data from 2006 to 2016 and the estimation results show that the uncompensated price elasticity is −0.062, and the estimated income elasticity of residents is 0.889. To better understand the welfare implications of cross‐subsidies, which requires an estimate of the price elasticity of demand in the industrial sector. Based on the estimated price elasticity of electricity, we simulate the consumer surplus under different pricing mechanisms. Ramsey pricing, as expected, generated the larger consumer surplus than actual pricing mechanism, which would provide guidance for the price reform of China's power industry.