Non-linear Engel Curves Research Articles

The Role of Pre-Commitments and Engle Curves in Thailand’s Aggregate Energy Demand System

In the present paper, an investigation into Thailand’s energy demand is performed to determine if: (1) a linear or nonlinear Engel curve better explains the relationship between income and energy consumption, and (2) systems with pre-commitments better model energy consumptions. Four demand systems are estimated: an almost ideal demand system (AIDS), the quadratic almost ideal demand system (QAIDS), generalized almost ideal demand system (GAIDS), and the generalized quadratic almost ideal demand system (GQAIDS). Elasticities are calculated for policy implications. The empirical results suggest that models considering pre-commitments and nonlinear Engel curves may be slightly more appropriate for Thailand’s energy system, from both statistic and economic standpoints. Statistical inferences appear to favor the GQAIDS model based on the encompassing results. Economic reasonability also appears to favor the GQAIDS model, in particular, petroleum products, as it provides results consistent with the notions of precommitments and fuel substitutability found in previous studies. Most of the previous studies in various forms have shown that the demand for petroleum products is relatively inelastic to price in Thailand. The current study, however, finds that own-price elasticities of uncompensated demand for petroleum products are almost unitary, which is relatively more elastic than most of the previous studies. As such, further studies are required and the price-based policy on petroleum products targeting the reduction in petroleum product dependence must be implemented with caution.

Distributional effects of carbon pricing when considering household heterogeneity: An EASI application for Austria

This paper studies the distributional impacts of a carbon tax in Austria and explores compensating measures to mitigate negative side effects. We extend previous studies by focussing on household heterogeneity, i.e. how housing attributes and socio-demographics govern a household's vulnerability to energy price increases. We apply the EASI demand system, which captures non-linear Engel curves and heterogeneous preferences; both crucial to estimate energy consumption. By simulating stylised, separate price increases we identify how seemingly overall similar welfare effects differ, depending on the energy good taxed, the region a household lives in, year of construction and household composition. These impact channels, with the severity of impacts differing according to various household characteristics are also reflected by the carbon tax scenario and reveal the importance of targeted support schemes. Although, each of the tested transfer schemes is able to enhance equality and cushion negative welfare effects, transfer schemes focussing on household size or on particular vulnerable population segments show the strongest effects in terms of equality, proportionality of the tax burden and welfare. Consequently, in order to yield a socially fair energy or carbon tax regime, taking household heterogeneity into account is essential.

G-RDEM: A GTAP-Based Recursive Dynamic CGE Model for Long-Term Baseline Generation and Analysis

We motivate and detail the newly developed G-RDEM recursive-dynamic Computable General Equilibrium model as a tool for long-term counterfactual analysis and baseline generation from given GDP and population projections. It encompasses an AIDADS demand system with non-linear Engel curves, debt accumulation from foreign saving and introduces sector specific productivity changes, endogenous aggregate saving rates, as well as time-varying input-output coefficients. Parameters for these relationships are econometrically estimated or taken from published work. The core of the model is derived from the GTAP standard model and seamlessly incorporated into the modular and flexible CGEBox modelling platform. Accordingly, it can be applied with various other extensions such as GTAP-AEZ, GTAP-Water or a regional breakdown for Europe to 280 NUTS2 regions. G-RDEM maintains the flexible aggregation from the GTAP data base. It is open source, encoded in GAMS and can be steered by a Graphical User Interface, which also encompasses a tool to analyse results with tables, graphs and maps. Existing GDP and population projections for the Socio-Economic Pathways 1-5 can be directly incorporated for baseline construction. A comparison of the generated long-term structural composition of the economy against a simple recursive-dynamic variant, using the basic CDE demand system of the standard GTAP model, uniform productivity growth, fixed saving rates and technology parameters, and no debt accumulation shows that G-RDEM brings about much more plausible results, as well as a more realistic, internally consistent representation of the economic structure in a hypothetical future.

G-RDEM: A GTAP-Based Recursive Dynamic CGE Model for Long-Term Baseline Generation and Analysis

We motivate and detail the new GTAP-based recursive dynamic economic model (G-RDEM), a computable general equilibrium tool for long-term counterfactual analysis and baseline generation from given gross domestic product (GDP) and population projections. It encompasses an implicitly directly additive demand system (AIDADS) demand system with non-linear Engel curves, debt accumulation from foreign saving and introduces sector specific productivity changes, endogenous aggregate saving rates, as well as time-varying cost shares for value added and individual intermediates. Parameters for these relationships are econometrically estimated or taken from published work. The core of the model is derived from the Global Trade Anaylsis Project (GTAP) standard model and seamlessly incorporated into the modular and flexible CGEBox modelling platform, allowing for combined applications with various other extensions, such as GTAP-agro-ecological zones (AEZ) or GTAP-Water. G-RDEM maintains the flexible aggregation from the GTAP Data Base. It is open source, encoded in General Algebraic Modelling System (GAMS) and can be steered by a Graphical User Interface, which also encompasses a tool to analyse results with tables, graphs and maps. Existing GDP and population projections from the Socio-Economic Pathways (SSP) 1-5 can be directly incorporated for baseline construction. A comparison of the generated long-term structural composition of the economy against a simple recursive-dynamic variant, derived from the standard GTAP model, shows that G-RDEM brings about much more plausible results, as well as a more realistic, internally consistent representation of the economic structure in a hypothetical future.

Redistribution and pollution taxes with non-linear Engel curves

This paper analyses optimal corrective taxation and optimal income redistribution. The Pigouvian pollution tax is higher if pollution damages disproportionally hurt the poor due to equity weighting of pollution damages. Moreover, under general utility functions, optimal pollution taxes should be set below the Pigouvian tax if the poor spend a disproportionate fraction of their income on polluting goods. However, if Engel curves are linear, optimal pollution taxes should follow the first-best rule for the Pigouvian corrective tax even if the government wants to redistribute income and the poor spend a disproportional part of their income on polluting goods. The often-used quasi-linear, CES and Stone-Geary utility functions all have linear Engel curves. If Engel curves are linear, and if pollution taxes are not optimised, Pareto-improving green tax reforms exist that move the pollution tax closer to the Pigouvian tax. Simulations demonstrate that optimal corrective taxes should be Pigouvian if the demand for polluting goods is derived from a LES demand system, but deviate from the Pigouvian taxes if demand for polluting goods demand is derived from a PIGLOG demand system.

Inequality and Structural Change Under Non-Linear Engels' Curve

We analyze the relationship between income inequality and structural change in the sectoral composition of the tradable and the non-tradable sectors. We construct a small open economy two sector model where preferences imply non-linear Engel curves and we show that the relationship between income inequality and structural change crucially depends on the non-linearity of the Engel curves. We calibrate this model to the US economy in the period 1960-2010 and we show that it explains the observed patterns of structural change in terms of the sectoral composition of consumption and employment, it also explains the increase in inequality measured by the Gini index and, finally, it is consistent with the large reduction in the trade balance. From the analysis of several counterfactual exercises, we obtain the following insights: (i) income inequality contributes to explain structural change and reduces GDP when Engel curves are non-linear; (ii) asset accumulation and the time path of GNP do not depend on the level of inequality, but on the evolution of income inequality; and (iii) a rising inequality implies a faster accumulation of assets, a larger growth of GNP and a faster deterioration of the trade balance.

G-RDEM: A GTAP-Based Recursive Dynamic CGE Model for Long-Term Baseline Generation and Analysis

We motivate and detail the newly developed G-RDEM recursive-dynamic Computable General Equilibrium model as a tool for long-term counterfactual analysis and baseline generation from given GDP and population projections. It encompasses an AIDADS demand system with non-linear Engel curves, debt accumulation from foreign saving and introduces sector specific productivity changes, endogenous aggregate saving rates, as well as time-varying input-output coefficients. Parameters for these relationships are econometrically estimated or taken from published work. The core of the model is derived from the GTAP standard model and seamlessly incorporated into the modular and flexible CGEBox modelling platform. Accordingly, it can be applied with various other extensions such as GTAP-AEZ, GTAP-Water or a regional breakdown for Europe to 280 NUTS2 regions. G-RDEM maintains the flexible aggregation from the GTAP data base. It is open source, encoded in GAMS and can be steered by a Graphical User Interface, which also encompasses a tool to analyse results with tables, graphs and maps. Existing GDP and population projections for the Socio-Economic Pathways 1-5 can be directly incorporated for baseline construction. A comparison of the generated long-term structural composition of the economy against a simple recursive-dynamic variant, using the basic CDE demand system of the standard GTAP model, uniform productivity growth, fixed saving rates and technology parameters, and no debt accumulation shows that G-RDEM brings about much more plausible results, as well as a more realistic, internally consistent representation of the economic structure in a hypothetical future.

Empirical demand systems incorporating intertemporal consumption dynamics

This article presents and estimates demand systems by explicitly incorporating intertemporal consumption behavior as summarized by the Euler equation. Demand systems are characterized by two indirect utility functions which are effectively globally regular and can better approximate nonlinear Engel curves. Furthermore, an exact and nonlinear Euler equation is derived without a log approximation. This equation is estimated jointly with the demand functions by a careful implementation of the orthogonality conditions using generalized method of moments. We illustrate the techniques by estimating the demand system and Euler equation for Australian aggregate data. Results generally indicate that the proposed methods are promising. The estimated rate of time preference is fairly small while the restrictions producing the moment equations are not rejected. Estimated Frisch price elasticities, which are relevant in an intertemporal setting, appear reasonable, and the intertemporal elasticity of substitution for consumption is found to be small, which are consistent with the findings in earlier studies.

Estimation of a complete system of nonlinear Engel curves: further evidence from Box–Cox Engel curves for Sri Lanka

The specification and estimation of Engle curves has drawn much attention over many years since the earliest attempt of Working (1943). Among the many approaches, a complete system of Engel curves stood out as more appealing as it explicitly imposes the important budget constraint in the allocation of family budgets. Further, extended researches were undertaken on nonlinear specifications as they are likely to produce results that are closer to the reality than the linear systems. Beneito (2003) attempted Box–Cox form of nonlinear specification but ended up estimating a set of linear equations using seemingly unrelated regression equations method. The present research extends the previous work on Engle curves in two ways; first by incorporating key demographic characteristics into the determination of expenditures in the specification of the Box–Cox form of nonlinear system, and second by using primary micro data from large household surveys to estimate the system by nonlinear estimation methods. Our estimations have produced robust results; the expenditure patterns are significantly nonlinear and the expenditure patterns are significantly different for different demographic groups.

Structural change, Engel's consumption cycles and Kaldor's facts of economic growth

Non-linear Engel-curves for consumer goods cause continuous structural change. Goods are sequentially introduced starting out as a luxury with high income elasticity and ending up as a necessity with low income elasticity. Although this leads to rising and falling sectoral employment shares, the model exhibits a steady growth path along which the Kaldor facts are satisfied. Extending the basic model to the case of endogenous product innovations shows that complementarities between aggregate and sectoral growth may give rise to multiple equilibria.

Cobb-Douglas Utility with Nonlinear Engel Curves in a Conspicuous Consumption Model

We solve Ireland's (1994) conspicuous consumption model (where social-status concerns are introduced into the utility function) for Cobb-Douglas (CD) utility. In the resulting generalized CD consumer model, Engel curves are no longer limited to linearity. In the homothetic CD case, total expenditure elasticities are therefore no longer limited to unity. Furthermore, whether a commodity is a luxury or a necessity is determined by whether it is visible or non-visible to society. Cross-commodity variation in the shape of Engel curves is thus derived from a measurable property of commodities. This reopens the possibility of explaining empirically observed consumption patterns with a CD utility model.

Frequency of purchase and the estimation of demand systems

In this paper we consider a joint model for frequency of purchase and consumer demand. We discuss sufficient identifying assumptions for the estimation of consumer demands from survey data for the general case of nonlinear (or linear) Engel curves. Moreover we show that in many cases the actual number of purchases is necessary in order to obtain consistent parameter estimates for the demand system. The empirical application relates to the estimation of a demand system for French foodstuffs.

Optimally uniform commodity taxes and non-linear engel curves: A generalisation of the linear case

A sufficient condition for optimally uniform commodity taxes is derived in the more realistic non-linear Engel curve case and in a form that allows easy checking from the various parameter estimates. This general condition is shown to yield certain well-known sufficient conditions as special cases.

Testing for Linear Engel Curves and Additively Separable Preferences Using a New Flexible Demand System

Journal Article Testing for Linear Engel Curves and Additively Separable Preferences Using a New Flexible Demand System Get access Richard Blundell, Richard Blundell University of Manchester Search for other works by this author on: Oxford Academic Google Scholar Ranjan Ray Ranjan Ray University of Manchester Search for other works by this author on: Oxford Academic Google Scholar The Economic Journal, Volume 94, Issue 376, 1 December 1984, Pages 800–811, https://doi.org/10.2307/2232296 Published: 01 December 1984

The Representative Consumer Concept and Inequality

One of the most important recent developments in the theory of consumer behaviour has been the constructive approach to the problem of consistent transition from the microeconomics of consumer behaviour to the analysis of market demand, a problem referred to as the problem. Earlier economists opt for an escape from this problem by assuming that for each good all consumers have the same marginal propensity to consume, a condition that Gorman (1953) proves necessary and sufficient for consistent linear aggregation. Gorman's solution, however, is very restrictive: it implies that all Engel curves are linear. This assumption contradicts most empirical evidence on cross-section consumer demand and has prompted some economists to search for less restrictive (nonlinear) demand systems which satisfy the requirements for consistent aggregation. Pearce (1964) and Diewert (1974) report successes in this field, but the first systematic treatment of the problem of aggregation in a system of nonlinear Engel curves is found in the Generalised Linear (GL) model, which is due to Muellbauer (1975, 1976). The basic feature of the GL demand system is that the effect of budget (re-)distribution on the structure of aggregate demand is taken explicitly into account through the notion of the consumer (i.e. the consumer whose budget shares are identical to the shares of commodities in market demand). The following section presents a simple diagram illustrating the principle on the basis of which the GL system tackles the problem of aggregation. Section II examines the properties and welfare implications of the inequality index that underlines the representative consumer approach, and Section III concludes the paper.

A non-separable generalisation of the linear expenditure system allowing non-linear Engel curves

This paper proposes and estimates a new generalisation of the LES that allows for both non-linear Engel curves and non-separable preferences. The empirical results decisively reject linear Engel curves on pooled cross section data and separable preferences on pure time series data.