Income Elasticity Of Demand Research Articles

The effect of taxation and regulation on cigarette smoking: Fresh evidence from Turkey

Enacting Law No 5247 in May 2008, Turkey has initiated crucial anti-tobacco policies in the last decade. This paper aims to reveal on the effect of anti-tobacco policies such as excise taxes and regulations on cigarette smoking. To this aim, I empirically investigate the long-term dynamics of demand for cigarettes in Turkey through the OLS estimation strategy under various scenarios and models. Using monthly and quarterly data that cover the pre- and post- anti-smoking policy periods, I estimate demand elasticities and compare the pre- and post- taxation and regulation terms. The results presented in the paper confirm that taxation and regulation have affected the long-term dynamics of demand for cigarettes. The price and income elasticities of demand for cigarettes are significantly higher than the previous literature on Turkey. Demand elasticities have increased on average in the anti-tobacco policies period.

Capital-labor substitution, structural change, and growth

There is growing interest in multisector models that combine aggregate balanced growth, consistent with the well known Kaldor facts, with systematic changes in the sectoral allocation of resources, consistent with the Kuznets facts. Although variations in the income elasticity of demand across goods play an important role in initial approaches, recent models stress the role of supply-side factors in this process of structural change, in particular sector-specific technical change and sectoral differences in factor proportions. We explore a general framework that features an additional supply-side mechanism and also encompasses these two known mechanisms. Our model shows that sectoral differences in the degree of capital–labor substitutability—a new mechanism—are a driving force for structural change. When the flexibility to combine capital and labor differs across sectors, a factor rebalancing effect is operative. It tends to make production in the more flexible sector more intensive in the input that becomes more abundant. As a result, growth rates of sectoral capital–labor ratios can differ and, if this effect dominates, shares of each factor used in a given sector can move in different directions. We identify conditions under which this occurs and analyze the dynamics of such a case. We also provide some suggestive evidence consistent with this new mechanism. A quantitative analysis suggests that this channel was an important contributor to structural change out of agriculture in the United States.

An Alternative Base Case for Modeling Trade and the Global Environment

The trade-and-environment literature often begins with a generic base case. Sectors differ in pollution intensities and countries have sectoral comparative advantage. Pollution comes from production, not consumption, and consumers have identical, homothetic preferences over goods and environmental quality. Policy instruments are Pigouvian taxes and tariffs. I argue that this model is counter-empirical in some ways and assumes away other crucial features. I offer a simple alternative base case, in which global pollution is proportional to all economic activity, and where environmental quality has an income elasticity of demand exceeding one. An income tax can fund an abatement activity, diverting resource from production and creating a terms-oftrade externality that passes some costs of abatement to the other country. I contrast cooperative and non-cooperative outcomes between governments of two countries differing in per-capita incomes. Free trade is good for the environment because (a) gains from trade increase resources devoted to abatement and (b) countries can pass more of their abatement costs to the other country in the non-cooperative case. Leakage takes a very different form called “policy leakage” and border taxes are counter-productive. When per-capita income differences are large, a poor country may be worse off when the large country abates (reversing the usual argument on free riding) and cooperative bargaining over abatement levels may offer no gains. Finally, I examine “issue linking” in bargaining when one country is both large and rich, and hence has both a high tariff and a high abatement effort in a non-cooperative equilibrium.

Inter-sector GDP Substitutability in Macro-Money Demand: Novel Evidence for India

The gross domestic product (GDP) as a scale variable in the macro-money demand function is justified only on the simplifying but verifiable assumption that the individual-sector GDPs have the same marginal money demand propensities. This assumption is easily verifiable by replacing the aggregate GDP with the services sector and commodity sector GDPs as two scale variables. The money demand propensities differ between these two sectors. To empirically verify this, a variable elasticity of substitution model is posited with these two sector GDPs as scale variables. This novel model permits us to estimate the parameter of elasticity of substitution between the two-sector GDPs .We expect the elasticity estimate to be greater than unity first and decrease towards unity later in the post-liberalization period 1992-2012 and this ensures a unitary income elasticity of demand for money for the aggregate GDP. For the pre-liberalization period (1971 to 1991) we expect the substitutability between the two sectors to be either less than unity or even negative. The policy implication of disparate sector-GDP growth rates for money demand should not be ignored in an emerging economy of India, where the GDP structure evolves towards invariance as in a developing economy.

US Household Demand for Organic Fruit

We estimate US household monthly elasticities of demand for some of the more popular organic fruits. To our knowledge, this is the first US-wide, multi-year analysis of price and income elasticities for various organic fruits. We calculate elasticities of demand for low-income, middle class, and rich income bracket households using three estimation techniques: two econometric methods and one machine learning method (least absolute shrinkage and selection operator (LASSO)). Demand estimates are based on Nielsen scanner data from approximately 60,000 households collected from 2011 to 2013. Generally, we find that own-price conditional and unconditional elasticities of demand for organic fruits are negative. Unconditional elasticity magnitudes tend to be largest in the representative middle-class household. Income elasticities of demand measurements are inconsistent and often statistically insignificant. This finding is consistent with the survey literature finding that many consumers buy organic food for mostly moral or ethical reasons. We run two policy experiments: a 10% subsidy of organic fruits, and a 10% tax on conventional fruits. Our hypothetical policies engender a stronger reaction among the general public than habitual buyers of organic fruit; unconditional purchase and expenditure elasticities are generally larger than conditional purchase and expenditure elasticities. Finally, we find that elasticities measured with the LASSO technique are not radically different than those measured with econometric methods. The most noticeable difference between the two analytical techniques is that LASSO is more likely to find price and income elasticities of demand that indistinguishable from zero, both substantively and statistically.

Is the Balance of Payments Constrained Growth Rate Time-Varying? Exchange Rate Over Valuation, Policy-Induced Recessions, Deindustrialization, and Long Run Growth

A long-held view among macroeconomists in the UK and US is that sustained currency over valuation – often the result of financial-sector dominance – weakens domestic macroeconomic performance and results in premature deindustrialization. Similar concerns have been expressed about persistent, policy-induced recessions. According to balance-of payments-constrained growth (BPCG) theory, meanwhile, the BPCG rate in a multi-sector economy varies directly with the share of manufacturing in total output. This chapter develops a simple model that combines these observations to show how a temporary but persistent shock to the nominal exchange rate and/or domestic demand can both affect the actual rate of growth in the short run (by moving it away from the long-run equilibrium BPCG rate), and alter the BPCG rate itself (by lowering the income elasticity of demand for exports as a result of induced premature deindustrialization). The result is a time-varying balance-of payments constrained growth (TV-BPCG) rate. Because actual growth and the TV-BPCG rate vary directly, the latter is also characterized as quasi path dependent.

Thirlwall's law and the specification of export and import functions

AbstractThe contribution of this paper is threefold. First, it proposes general specifications for export and import functions that encompass the contributions of both Kaldorian and Schumpeterian literatures on the determinants of trade performance. Second, the paper provides evidence of the impact of nonprice competitiveness, measured by the growth of relative economic efficiency on export and import growth in different technological sectors. Third, it shows that the magnitude of income elasticities of demand is partially determined by relative economic efficiency.

Income elasticity of demand for tourism at Fulufjället National Park

National Parks are significant markers in the tourism attraction system and represent an important supply of recreation opportunities for the clients of the nature-based tourism industry. In this study, we analyze income elasticities among visitors from two major nationalities at Fulufjället National Park (FNP)—a cross-boundary park between Sweden and Norway—to see if this tourism product is a luxury or not. Modeling demand with a Tobit model, we find that visiting this National Park is close to a luxury, but results also show that elasticities differ across both income and nationality: FNP is more likely to be a luxury good among low-income Germans and high-income Swedes. The article concludes with a discussion on policy and management implications from these results.

The Greek economy under the twin-deficit pressure: a demand orientated growth approach

This paper uses an alternative growth approach in line with Thirlwall’s model in order to predict economic growth in Greece taking into account internal and external imbalances caused by public deficit/debt and lack of trade competitiveness. It is shown that the simple Thirlwall’s Law (given by the product of the ratio of the income elasticities of demand for exports and imports, and the growth of foreign demand) over-predicts real growth in Greece while the more complete extended model, makes a closer prediction which is consistent with the high deficit/debt and current account deficit experienced in this country. The simulation approach shows that the most efficient policy to attain higher growth is to reduce external imbalances while policies to reduce internal imbalances are low growth enhancing.

An Econometric Assessment of Electricity Demand in the United States Using Utility-specific Panel Data and the Impact of Retail Competition on Prices

This paper uses a panel data of 72 U.S. electricity distribution companies during the period 1972-2009 to estimate structural demand and reduced-form price models. I find the own-price and income elasticity of demand for residential, commercial, and industrial customers that are generally consistent with the published economics literature. While static models work well for residential demand, dynamic models are more appropriate for the larger customer classes who require more time to adjust. Conditioning on the regressors, I find that residential and commercial electricity demand has been increasing slowly while industrial electricity demand and deflated electricity prices have been decreasing. In all price models I find that total factor productivity is consistently the most significant explanatory factor with a 1% increase in total factor productivity resulting in a reduction in deflated electricity prices ranging between 0.05% and 0.30%, depending on the model. Lastly, I find that retail electricity competition is associated with lower deflated electricity prices with the mean total impact being -4.3%, -8.2% and -11.1% for residential, commercial and industrial customers, respectively and with the impact diminishing over the sample period for residential customers, remaining relatively constant for commercial customers and increasing for industrial customers.

Analysis on Car Elasticities: A Comparison on Toyota and Other Brands in Thailand

In this paper, we have compare the price and income elasticities of demand between cars of Toyota against Nissan and Ford. The main findings are that: 1) Nissan and Ford are treated as more luxurious than their Toyota counter parts for small cars. For very large cars, on the other hand, price elasticities are positive. 2) The small cars are all treated as inferior goods, but not the very large cars. 3) Comparing between 2014-15 and 2016-17, the small cars are treated as less inferior and the large cars are treated as less luxurious. These results are not only important to point out the changing behaviors of Thai consumers. They suggest the change in the state of the economy after 2014. The main event in 2014 is the start of the NCPO government on May, 2014. However, this study suffers from several limitations. They are as the following: 1) Car consumption is not only dependent on income. There are factors such as popularity, sales promotion, and the continuously launch of new cars. People may tend to appreciate newly released cars more. 2) Data is limited. The data is not from the whole year. This is because the inconsistency of the data source. However, this is inevitable because a more detail reports of car quantities are the companies’ secret. 3) Car prices do not usually change. The percentage change in cars price will be small and causing the elasticity to be very large, despite a relatively small change in the quantity bought. Therefore, this study can be expanded using a more complex analysis including these factors. This study shows that, overall the elasticity of car demand is theoretical sounding, but the pattern of car consumption cannot be studied using price or income alone.

The Calibration and Performance of a Non-homothetic CDE Demand System for CGE Models

In computable general equilibrium modeling, whether the simulation results are consistent with a set of valid own-price and income demand elasticities that are observed empirically remains a key challenge in many modeling exercises, since functional forms that are not fully flexible can only allow a limited subset of elasticities. While not fully flexible, the Constant Difference of Elasticities (CDE) demand system has enough free parameters to match own-price and income elasticities in some cases, leading to its adoption by some models since the 1990s. However, perhaps due to complexities of the system, the applications of CDE demand in other models are less common. Furthermore, how well the system can represent the given elasticities is rarely discussed or examined in the existing literature. This study aims to fill this gap by revisiting calibration strategies for the CDE demand system and exploring conditions where the calibrated elasticities of the system can better match a set of valid target elasticities. Results show that the calibrated elasticities can be matched to the target ones more precisely if the sectoral expenditure shares are lower, the target own-price demand elasticities are lower, and target income demand elasticities are relatively higher. The study also incorporates a CDE demand into the GTAPinGAMS model and verifies that for the revised model with a CDE demand system, the model can successfully replicate the calibrated elasticities under various price and income shocks.

Beyond Dualism: Agricultural Productivity, Small Towns, and Structural Change in Bangladesh

This paper uses a framework that goes beyond rural-urban dualism and highlights the role of small town economy (STE) in understanding structural change in a rural economy such as Bangladesh. It provides a theoretical and empirical analysis of the role of agricultural productivity in structural transformation in the labor market, with a focus on the differences between a village economy and a small town economy. The empirical work is based on a general equilibrium model that formalizes the demand and labor market linkages: the STE draws labor away from the rural areas to produce goods and services whose demand may depend largely on rural income. The theory clarifies the role played by the income elasticity of demand and the elasticity of wage with respect to productivity increase in agriculture. For productivity growth to lead to a demand effect, the elasticity of wage has to be lower than a threshold. When the demand for goods and services produced in small towns comes mainly from the adjacent rural areas, the demand effect can more than offset the negative wage effect and lead to higher labor allocation to the production of town good. Using rainfall as an instrument for agricultural productivity, the empirical analysis finds a significant positive effect of agricultural productivity shock on rice yield and agricultural wages. The evidence shows that productivity shock increases wages more in the rural sample when compared to the STE sample. But structural change in employment is more pronounced in the STE sample. In the rural sample, it increases employment only in small scale manufacturing and services. In contrast, a positive productivity shock has large and positive impacts on employment in construction and transport, education, health and other services, and manufacturing employment in larger scale enterprises located in small towns and cities. Agricultural productivity growth is found to induce structural transformation within the services sector in small towns, with employment in skilled services growing at a faster pace than that of low-skilled services.

Are the Transition Economies Balance-of-Payments Constrained? An Aggregate and Multisector Approach Applied to Central and Eastern Europe

The balance-of-payments (BoP) can act as a constraint on the output growth rate because it limits the growth of demand. This article focuses on verifying whether the hypothesis that BoP constrains growth is suitable for explaining the growth performance of several transition economies in Central and Eastern Europe that joined the European Union after 2004. According to Thirlwall’s law, the BoP equilibrium growth rate in an economy is determined using the ratio of the income elasticities of demand for exports and imports and the growth in foreign demand. The results obtained are compared with the multisector version of Thirlwall’s law as an alternative approach that considers the structure of the economy and how specialization affects BoP-constrained growth. The results show that almost all the transition countries in the sample grew at a higher rate than is consistent with the BoP equilibrium and that the multisector version of this approach predicts actual growth in these countries.

Taking dietary habits into account: A computational method for modeling food choices that goes beyond price.

Computational models have gained popularity as a predictive tool for assessing proposed policy changes affecting dietary choice. Specifically, they have been used for modeling dietary changes in response to economic interventions, such as price and income changes. Herein, we present a novel addition to this type of model by incorporating habitual behaviors that drive individuals to maintain or conform to prior eating patterns. We examine our method in a simulated case study of food choice behaviors of low-income adults in the US. We use data from several national datasets, including the National Health and Nutrition Examination Survey (NHANES), the US Bureau of Labor Statistics and the USDA, to parameterize our model and develop predictive capabilities in 1) quantifying the influence of prior diet preferences when food budgets are increased and 2) simulating the income elasticities of demand for four food categories. Food budgets can increase because of greater affordability (due to food aid and other nutritional assistance programs), or because of higher income. Our model predictions indicate that low-income adults consume unhealthy diets when they have highly constrained budgets, but that even after budget constraints are relaxed, these unhealthy eating behaviors are maintained. Specifically, diets in this population, before and after changes in food budgets, are characterized by relatively low consumption of fruits and vegetables and high consumption of fat. The model results for income elasticities also show almost no change in consumption of fruit and fat in response to changes in income, which is in agreement with data from the World Bank’s International Comparison Program (ICP). Hence, the proposed method can be used in assessing the influences of habitual dietary patterns on the effectiveness of food policies.

Is positive income elasticity of demand really associated with normal goods?: revisiting the Slutsky equation and net benefit ratio

Incorporating a household’s net sale status into a rearranged Slutsky equation with combined ordinary and endowment income effects, this paper aims to reinterpret the income elasticity of demand in the case of buying and selling and to associate it with types of goods in a novel manner. To this end, the Deaton’s (1989) net benefit ratio (NBR) approach is expressed as the difference between original and endowment budget shares, and formulated in its elasticity form as the difference between the Hicksian and Marshallian own-price elasticities at any given price, divided by the income elasticity. While the numerator in the latter expression is always positive (negative) for normal (inferior) goods, the denominator may be either positive or negative for either type of good, depending on the net sale position of the household. A positive NBR for a normal good implies that the household is a net demander of that good and that the income elasticity is positive. When the NBR is negative for such a good, it implies that the household is a net seller and that the income elasticity is negative. Again, a positive NBR for an inferior good refers to the fact that the household is a net demander and the income elasticity is negative, whereas a negative NBR reveals that the household is a net seller of that good, which has, unconventionally, a positive income elasticity.

Does Balance of Payments Constrained Growth Model Hold in Saudi Arabia?

The paper aims to examine whether or not the balance of payments constrained growth model holds in Saudi Arabia. Also, the paper seeks to examine whether the balance of payments constrained growth model can predict Saudi Arabia's real GDP growth rate. In the long-run, the estimation results show that Saudi Arabia has an elastic income elasticity of demand for imports and an inelastic price elasticity of demand for imports. The McCombie test shows that the hypothetical income elasticity of demand for imports, which assumes balance of payments is in equilibrium, is not significantly different from the estimated income elasticity of demand for imports. The test was conducted by assuming that the terms of trade remains constants in the long-run and by including terms of trade effect. As a result, the paper provides evidence proving the validity of the Thirlwall's model in Saudi Arabia. Furthermore, the paper shows that Saudi Arabia's real GDP growth rate behaves in a similar fashion to the growth rate predicted by the balance of payments constrained growth model. In addition, the paper has provided an overview of Saudi Arabia's 2030 vision and how the balance of payments constrained growth model's recommendation can fit into Saudi Arabia's 2030 vision.

National Innovation System and external constraint on growth

ABSTRACT Segundo a literatura sobre modelos de crescimento com restrição externa, as diferenças nas elasticidades-renda da demanda de importações e de exportações entre os países levam a diferentes graus de restrição externa ao crescimento dos mesmos. Contudo, não há nesta literatura uma explicação que utiliza o conceito Evolucionário de Sistema Nacional de Inovações (SI) para mostrar o motivo para as diferenças nas elasticidades-renda dos países. Ademais, não há um consenso sobre a exogeneidade destas elasticidades. Alguns autores enfatizam que a elasticidade-renda de exportações é maior nos setores com maior intensidade tecnológica. Porém, estes autores não explicam os motivos para isto ocorrer. Neste artigo visa-se mostrar teoricamente a relação de causalidade entre o SI de uma economia, suas elasticidades-renda e seu desempenho em transações correntes. Objetiva--se, também, mostrar o papel do SI na determinação da exogeneidade/endogeneidade das elasticidades. A evidência empírica apresentada neste estudo não rejeita seus argumentos.

PERMINTAAN TERIGU DI INDONESIA

This study on wheat demand in Indonesia attempto know the factors influencing the wheat demand and to what extent it is influenced.The data used in this study is a time series of 1967 to 1986, and regression analysis was employed with static double log model.The result indicates that the price elasticity of demand for wheat is not elastic, while the income elasticity of demand is elastic. The cross price elasticity of demand of rice is not elastic.Variables that consistently influence demand of wheat are, wheat price, rice price, and income. While for sugar, egg, milk, there is no strong eyidencce indicating that they are the wheat complements. It can not be concluded either that corn is the substitut of wheat

Kajian Sistem Permintaan Pangan Di Indonesia

This paper is aimed at analyzing food demand system in Indonesia using the 1990's National Socio-Economic Survey (SUSENAS) data. Using an Almost Ideal Demand System (AIDS), the food demand parameters and elasticities were estimated both in aggregated and disaggregated levels, that is an urban-rural and household's income disaggregation, respectively. The results show that during 1987-1990 period, the share of food expenditure in general has been declining relative to non-food, indicating an increasing welfare of the society. Nevertheless, the increase in welfare appears to be enjoyed by urban citizen than those living in the rural areas. This conclusion is also supported by the fact that the expenditure shares on protein-food (fish, meat, eggs, milk, and legumes) in urban area are higher than those in the rural area. The analysis found that: (1) the price demand elasticity for a number of food groups, including cereals and tuber, tend to decline as income increasing, (2) the income elasticity of demand for cereals is lower as income levels get higher, and the opposite is true for the protein-sources of food. The results of this analysis is therefore confirm that increasing income of the society will go along with the promotion of food diversification in consumption.