Income Elasticity Research Articles

What drives the preferences for cleaner energy? Parametrizing the elasticities of environmental quality demand for greenhouse gases

Research background: The heterogeneity in the factors that affect demand for environmental quality implicates a diverse set of policies and actions aimed at achieving cleaner production to address the challenges posed by pollution and damage to the natural environment. Even though this topic has been widely addressed, mainly from the traditional perspective of the Environmental Kuznets Curves hypothesis (EKC), it has been assumed that the environment is a luxury good with an income elasticity greater than unity. However, it has recently been recognized that the relationship between income and demand for cleaner energy may be more complex and that further inquiry may be needed for a better understanding. Purpose of the article: This research work, employing a panel of European countries, offers direct explicit parameters for the elasticity of income-environmental quality demand for Greenhouse Gases (GHG), as well as its relationship with other important factors. It provides quantitative novel insights into the complex relationship between income and the preferences for cleaner energy. Methods: A hierarchical regression equations approach is used to analyze the evolution of the elasticity of income-environmental quality demand with the inclusion of further co-variates that are relevant for the preferences side of the EKC, such as consumption, R+D investment and BERD (Business Enterprise Research and Development). The data for the empirical study comes from a panel of 16 European countries for the period from 2010 to 2020. Findings & value added: The results show robust evidence that the elasticity of environmental quality demand, which although positive and significant, does not exceed one. To obtain an elasticity above unity, two more variables are needed, namely the R+D expenditure of business enterprises and the exposure of citizens to air pollution. These two factors have a similar or even higher effect on the preferences of agents for cleaner energy, which also means that the preferences of the citizens are endogenous to technological development. At the theoretical level, this work shows that the technological and preferences arguments are not substitute explanations of the EKC, but that technological development exerts a positive effect on the preferences of inhabitants, whose demand for environmental quality is heavily conditioned by their capabilities to see pollution, even more than by their income level. This also means that public policies directed to improve environmental awareness should be directed first towards those regions where the exposure of the citizens to pollution is lower.

Income and expenditure elasticity of household carbon footprints. Some methodological considerations

The income and expenditure elasticity of household carbon footprints (CF) is a recurrent summary measure of the social stratification of greenhouse gas emissions. In top-down-estimates, when microdata are lacking, it is also used to estimate the inequality in emissions between households across the income or expenditure distribution. In this article, we point to several key methodological considerations when computing the elasticity of household CFs, and demonstrate their practical and empirical implications by making use of Belgian survey data. We find that the choice between income and expenditure as the main variable is most consequential for the estimated elasticity of household CFs, while the income elasticity of household emissions is more sensitive to a broader range of methodological choices. This has implications for top-down estimates of emissions along the income distribution, and related indicators of the inequality in household emissions by income groups.

Health expenditure in Botswana: A luxury or a necessity?

ABSTRACT This paper examines the relationship between health expenditure and income in Botswana and its implications for health policy. We employed micro-data drawn from the Household Income and Expenditures Surveys, 1993–94 and 2003–04 and macro-data from 1981 to 2016 to estimate the income elasticity of health expenditure. We estimated the arc-elasticity of private health expenditure, and the short-run and long-run income elasticity of public health expenditure, with control for the impact of technology, structural breaks, and the dynamic aspects of health expenditure. The results from the empirical estimations indicate that the demand for healthcare is a necessity in the short run and especially at the household level in Botswana. Furthermore, our results also establish that non-economic factors such as country-specific epidemiology are critical in explaining income elasticity of health expenditure.

Income Elasticity of Imports and External Constraint in Periods of Commodity Export Boom: Evidence for the Brazilian Economy

The work proposal includes verifying: i) whether the increase in the income elasticity of demand for imports (IEDI) in Brazil (between 1997q1 and 2018q4 ) can be explained by the increase in exports; ii) whether this could have occurred as a result of the increase in commodity exports; iii) the mechanisms by which the increase in IEDI occurred, whether through final consumption goods or through intermediate goods; iv) whether this should be considered in models that explain economic growth through the performance of the balance of payments (Thirlwall's Law). Then, to test this, we propose estimates a modified version of the multi-sectoral Thirlwall Law (MSTL). The vector autoregressive (VAR) methodology and the vector error correction model (VECM) were used in the estimations. The results showed that the growth of commodity exports has a significant impact on the increase in the IEDI in the analyzed period, which limits the possibilities for the Brazilian economy to reach a balanced growth trajectory with a higher growth rate in the long term.

Role of energy mix and eco-innovation in achieving environmental sustainability in the USA using the dynamic ARDL approach: Accounting the supply side of the ecosystem

The United Nations Framework Convention on Climate Change (UNFCCC) partners agreed with a landmark decision on environmental concerns at the COP26 in Glasgow, outlining future attempts and measures to ensure a secure environment. In this regard, several prior studies have looked at environmental issues using carbon dioxide emissions, or ecological footprint. However, considering these variables may cause the supply side of environmental quality to be overlooked. To make up for this shortcoming, this study examines the effect of energy mix (fossil fuels, nuclear, and renewables), economic growth, and eco-innovation on the load capacity factor, which emphasizes both the demand and supply side of the ecosystem since it takes biocapacity and ecological footprint into account. Hence, this study differs from previous research in that it takes a broader view of environmental sustainability. In this milieu, the current research employs a recently developed dynamic autoregressive distributed lag (DARDL) simulation model for the United States of America (USA), harnessing data from 1990 to 2018. The findings unveil that nuclear and renewable energy consumption and eco-innovation all positively impress the load capacity factor, meaning that these variables help the USA maintain its environmental sustainability. On the other side, fossil fuel usage and economic expansion curbs environmental sustainability. Furthermore, since the short-run income elasticity is larger than the long-run elasticity, the environmental Kuznets curve hypothesis is legitimate for the USA. These findings also validated by the frequency domain causality test. Based on the findings, specific policy proposals are given to assist the USA in improving its environmental quality and achieving the UN Sustainable Development Goals (SDGs) 7 (clean energy) and 13 (climate change mitigation).

Price and income elasticities of industrial electricity demand in Brazil: estimates and implications of COVID-19

PurposeThis study aims to examine the price and income elasticities of short- and long-run industrial electricity demand in Brazil between 2003 and 2020. The research also examines the impacts of COVID-19 in Brazil’s industrial electricity sector, including an analysis in states more and less industrialized.Design/methodology/approachDynamic adjustments models in panel data are used to present robust estimates and analyze the impact of different methodologies on reported elasticities.FindingsThe short-run price elasticity is estimated at −0.448, while the long-run values are around −1.60. Regarding income elasticity, the value is 0.069 in the short-run and is concentrated in 0.25 in the long-run. The inelastic results of income show that the industrial demand for electric energy follows the trend of loss of competitiveness of the Brazilian industry in the past years. In addition, the price of natural gas, the level of employment, and, in specific cases, the level of imports also influence industrial electricity demand.Originality/valueThe research is a pioneer in the investigation of the industrial behavior of electricity of the Brazilian industrial branch, using as control variables, the average temperature, and the level of rainfall, this one, so important for a country whose main source is hydroelectric. In addition, to the best of the authors’ knowledge, it is the first study, which is prepared to analyze the effects of COVID-19 on electric consumption in the industrial sector, investigating these impacts, including in the states considered more and less industrialized. The estimates generated may help in the design of the Brazilian energy policy.

Does economic growth benefit the poor? The role of institutions and religions

AbstractThis paper seeks to explain the difference across countries of the impact of national growth on the growth of the income of the poor. Traditionally, studies attempting to explain such differences investigate only the impact of some additional variables on the income level of the poor. Here, we introduce interaction terms to explain the change in the elasticity of income of the poor to national income. We focus on the role of formal and informal institutions and religions; variables which have rarely been considered in this context. The results show that only formal institutions (i.e.,Resistance to corruption) and, to some extent, informal institutions (i.e.,Trust all) explain the differences. Religion has no impact. The findings also show that improvements in theResistance to corruptionbenefits the extremely poor more than the poor.

Exploring the relationship between healthcare expenditure, income, medical technology, and aging: A pooled mean group analysis of African countries

This paper empirically examines the short and long-run relationships among healthcare expenditure, income, medical technology, and an aging population in a panel of 45 African countries over the period 1995-2018. We test for cross-sectional dependence among different countries and employ the pooled mean group estimator. The results support the presence of cross-sectional dependence in African countries and reveal that healthcare expenditure, income, medical technology, and aging population have a long-run relationship. Medical technology and an aging population are key drivers of healthcare expenditure in the low-income group as well as the middle-income group. The long-run income elasticities of healthcare expenditure are less than one for both income groups. Finally, we found bidirectional causality between healthcare expenditure and its determinants. Healthcare expenditure is considered a necessity for African countries. Nevertheless, low-income countries have higher income elasticities for private health expenditure compared to middle-income countries. We suggest that African governments should increase public healthcare spending since healthcare spending is a necessity. This increase will lead to growth in income and medical technology development, which will have a beneficial impact on health status.

Elasticity of Demand for Foods in Bulgaria

The present study examines the elasticity of demand for foods in Bulgaria. The latter includes – vegetables, fruits, sausages, dairy products, alcoholic beverages, non-alcoholic beverages, bread, etc. An assessment of the macro-environmental factors that impact the demand for foods in 2020 – 2021 has been made. Calculated are the price and the income elasticity of the demand for such goods. Quantified is their influence on food sales for the sub-period 2021 – July 2022. The research employs a comparative method of analysis and a historical approach. The information used is from the NSI, the statistical Yearbook and Infostat.

Estimation of income and price elasticities of Indian electricity demand

This study is the first to analyse Indian electricity demand at both the aggregate and sectoral levels between 1981 and 2020. We use a novel autoregressive distributed lag (ADL) cointegration test in the presence of unknown structural breaks. While the income elasticity is close to one in the residential and industrial sectors, it is greater than one in the aggregate and commercial sectors. These results reveal that economy-wide electricity intensity rises with economic expansion in India. The price elasticity is negative and smaller than one in absolute value in the aggregate sector (−0.66), the residential sector (−0.83), and the industrial sector (−0.63), but it is statistically insignificant in the commercial sector. These estimates allow us to provide sector-specific information for policy design and implementation in the power market.

Birth order and intergenerational income mobility in Japan: Is the first‐born child different?

AbstractThis study examines how birth order affects intergenerational income mobility (IGM) in Japan, focusing on the difference in IGM between firstborn and later‐born children. The elasticities of sons’ income with respect to fathers’ income are separately estimated for sons who are firstborn and sons who are later born by family size using a two‐sample, two‐stage least squares approach. For sons born in 1926–1981, this study finds that in families with four or more children, intergenerational income elasticity (IGE) for firstborn sons is substantially and significantly higher than that for later‐born sons. However, no significant birth order effects are found in households with two or three children.

Summaries of Articles

Summaries of Articles

Aggregated imports and expenditure components in Bangladesh: A cointegration and equilibrium correction analysis

Even though there have been a few studies on Bangladesh's aggregate import demand, the effects of the global financial crisis (GFC) on aggregate import demand still need to be measured. The short-run determinants of import demand also remained to be identified in the country. This paper explores both short-run dynamic and long-run cointegrating relationships, capturing the impact of the GFC on aggregate import demand. This study uses annual data from 1980 to 2021 (N = 42) and employs different econometric techniques for efficient results essential for compelling policy implications. The study derives an efficient dynamic equation using the best error correction mechanism. Additionally, this study includes unconventional determinants, namely, foreign currency reserves and components of expenditure (i.e., exports, private consumption and government expenditures, and expenditures on investment goods), along with the traditional import demand function. The study finds that all conventional and unconventional determinants of import demand are significant in both the long and short run. All determinants except relative price positively influence the volume of import demand. The income elasticity reduces over time, and the price inelasticity remains non-zero and negative, which indicates the competitiveness of domestic product substitutes for importable goods in the economy. In the long run, trade liberalization and foreign currency reserves have a limited positive influence on import demand. The findings of this study would be helpful for import-related policy implications in the country.

Household Demand for Food Prepared at Home and Food Away from Home in Indonesia

This study aims to analyze the demand for food among Indonesian households, consisting of foods prepared at home (FPAH) and food away from home (FAFH). Utilizing longitudinal data from the National Socioeconomic Survey 2011-2013, combined with the Village Potential Statistics, the study estimates the demand with the Linear Approximated Almost Ideal Demand System (LA/AIDS). The results show that both FPAH and FAFH are normal goods but FAFH is more elastic than FPAH. Additionally, in terms of income elasticity, we found that households show stronger responses in consumption on FAFH, compared to FPAH. We also present heterogeneity analysis on different types of household characteristics.

Income elasticity of demand and stock market beta

AbstractSystematic risk, or beta, measures stock price variability in the overall stock market. A considerable body of literature focuses on estimating beta. To the best of our knowledge, there is, however, a lack of definitive research on the impact of income elasticity of demand on stock market beta. This study is the first to examine this relationship using 659 publicly traded firms from 47 industries in South Korea from 2001 to 2020. To estimate the value of the stock market beta, we employ an econometric model with a fixed effects‐two stage least squares approach and use industry concentration as an instrumental variable to deal with the endogeneity problem in the estimation. The overall objective of this study is to investigate the influence of income elasticity of demand on stock market beta.

Analysis of household LPG demand elasticity in Cameroon and policy implications

Liquefied petroleum gas (LPG) is rapidly becoming a key part of Cameroon's energy mix, with enormous future potential. However, there are still many uncertainties about the extent of its potential market, which has so far often led to supply shortages. These shortages therefore constitute a major obstacle to the objective of promoting LPG as the main fuel in Cameroonian households. Accordingly, the short and long-run elasticities of LPG consumption in Cameroon are investigated in this work. This work uses annual time series data from 1994 to 2017. A basic model and four alternative specifications are used. Mid-run price and income elasticities of LPG consumption are found to be between −0.330 and −0.401, and, 0.159 and 0.569, respectively. Of all the five models, the error correction model is the most robust and the elasticities estimates reveal that price, income and urbanization are important determinants of LPG consumption in Cameroon. These results are consistent with those given by the other models, and in line with previous research on developing countries whose economic and demographic situation is similar to that of Cameroon. These results have serious implications on demand side management and calls for policy makers to promote widespread use of LPG especially in the savannah zone in order to reduce deforestation and overdependence on biomass.

Bias in Tax Progressivity Estimates

Tax progressivity is central in public and political debates when questions of vertical equity are raised. Applied, structural research demands a simple way to capture it. A power function approximation delivers one parameter that captures the residual income elasticity — a summary measure of progressivity. This approximation is accurate, tractable, and interpretable, and hence immensely popular. The most common procedure to estimate this parameter, a log ordinary least squares specification, produces biased and inconsistent estimates. A nonlinear estimator solves this issue and, using different data sets, I find differences in estimates between 6 and 14 percent.

ANALYZING HOUSEHOLD DEMAND FOR ANIMAL FOOD AS A SOURCE OF PROTEIN: THE CASE OF RURAL GORONTALO PROVINCE, INDONESIA

Animal foods are a major source of protein for households. Gorontalo Province has a lot of potential for marine fishery development, despite being one of the provinces where families consume less protein than the national protein sufficiency rate. This article investigates the household elasticity of demand for animal food in the context of increasing prices and incomes. The Quadratic Almost Ideal Demand System is used in to estimate the share equations from which reliable price and income elasticities can be derived. The article utilizes secondary data from the National Socio-Economic Survey for March 2021, which includes consumption and household expenditure information on all animal protein-containing meals, 4,811 households make up the study's sample. All animal foods, except for eggs, were found to be highly price elastic. The most elastic food is beef, which has a demand elasticity of 3.829%, followed by chicken meat (3.13%), fish (2.345%), milk (1.311%), and eggs (0.846 percent). Eggs were discovered to be price inelastic. Except for eggs, all animal products are considered luxury goods as indicated by income elasticity estimates. Beef has the highest income elasticity (3.181%), followed by chicken (2.957%), fish (1.674%), and milk (1.574 percent). Eggs are normal items because their income elasticity is the lowest at 0.589 percent. This finding confirms that for households in rural Gorontalo, price policy is more effective than income policy.

PLOTTING ENGEL CURVES FOR COMMODITIES "FOOD" AND "EDUCATION" IN THE CONTEXT OF UKRAINIAN HOUSEHOLDS’ WELL-BEING EVALUATION

The article is devoted to the adaptation of Engel's curve tools for evaluating the well-being of Ukrainian households. In particular, the assessment of the welfare inequality, observed between households with the lowest equivalent per capita income and the most affluent households, as well as the main trends in the change of the consumption structure for the period 2014-2020. The research is based on the concept that overcoming the concentration of consumer spending around the purchase of food is a necessary condition for the launch of microeconomic mechanisms of socio-economic development because it allows households to actively invest in the accumulation of human capital and thus overcomes the monopoly of budget financing of social sphere industries. To assess the level of satisfaction with food needs, the Engel line "income - food consumption" was constructed and the coefficient of elasticity of food consumption from income was determined. Similar calculations were made concerning the consumption of goods created by the educational sector.According to the results of the Engel function development, the income elasticity of the absolute amount of food consumption is equal to 0.47: an additional percentage of income encourages households to increase the amount of food consumption by 0.47%. According to our calculations, the income elasticity of educational goods consumption is equal to 0.928 (an additional percentage of real income encourages Ukrainian households to increase the amount of educational goods consumption by 0.93%). Therefore, Ukrainian households value education enough and tend to use economic opportunities (income released from priority needs satisfaction) for expanding education consumption.Both assessments of elasticity coefficients indicate that the achieved level of meeting food needs for the vast majority of Ukrainian households does not allow them to count on the release of their funds from meeting basic current needs and the expansion of those expenses that have the character of investing in human capital and have a pronounced positive impact on the qualification level of labor resources and the productivity of their use in the national economy.

Tax reforms and elasticity of taxable income: estimation using the current population survey

ABSTRACT Changes in taxable income can capture many of the behavioural responses to changes in tax policies. In this paper, using the publicly available Current Population Survey (CPS) data and analysing two of the most recent tax reforms (Tax Cuts and Jobs Act of 2017 and the American Taxpayer Relief Act of 2012), we provide a new estimate for the elasticity of taxable income with respect to marginal tax rates. As is common in the literature, the paper conducts a panel data analysis and compares taxable income from before and after tax reforms to estimate the elasticity. Using an instrumental variable approach, we find an elasticity of 0.81, a value that is within the range of estimates found in previous studies.