Short-run Income Elasticities Research Articles

Determining the Income Elasticity of Health Expenditure in Sub Sharan

ABSTRACT: The present study adds to the existing literature by grouping countries in sub-Saharan Africa into two broad health systems (public and private). A country's health system is classified as predominantly public if the average share of public health expenditure for the period under study is greater than the average share of private health expenditure; it is classified as predominantly private if the reverse is the case. The aim is to derive the income elasticities of health expenditure in other to unravel countries in the sub region where health provision is likely to be a necessary good. To capture the dynamic nature of the relationship, the study's methodology relies on several econometric procedures (pooled mean group, mean group, and common correlated error mean group estimators). Other variables included in the model are official development assistance, the price level, population above 65 and migrant remittances. The unit root test performed showed that most of the variables in the study are not stationary at level; however, they are cointegrated in the long run, justifying the choice of the estimation techniques. The empirical results reveals that the short run income elasticity of health expenditure in sub-Saharan Africa is 0.36 and in the long run, the value becomes 1.18 with a speed of adjustment of 0.41. This suggest that 41% of the short run disequilibrium is dissipated in the current period. Other variables that were included in the model as controls were not statistically significant. In the reduced model that has only income as regressor, the short run and long run income elasticities in the overall sample continues to remain significant, however, the income elasticity in the predominantly public health system is greater than the elasticity in the predominantly private health system. This suggests that health is more of a development issue in a predominantly private health system in sub–Saharan Africa. An implication of the present study is that citizens of sub-Saharan African countries that rely more on private financing of health expenditure are likely to be exposed to catastrophic health financing. Hence, policymakers can avert this by encouraging more public financing of healthcare provision.

Dynamic modelling of consumption patterns using LA-AIDS: a comparative study of developed versus developing countries

The traditional applied demand system estimation assumes that when consumer income and commodity prices change, the consumers instantaneously fully adjust to a new consumption equilibrium level and use a static demand system such as Static Linear Almost Ideal Demand System (Static LA-AIDS) for estimation. However, in real-life situations, such an assumption does not hold as consumers take time to settle to a new consumption equilibrium level. Hence, dynamic demand system estimations generate more nuanced insights into the short-run dynamics of consumer demand. This paper estimates two forms of dynamic versions of AIDS, Dynamic LA-AIDS and the error-corrected LA-AIDS, and compares the results with the Static LA-AIDS. The paper also models the consumption patterns of consumers in developed and developing countries and provides a comparative analysis of implied elasticities using recent data. The results show that the dynamic models support demand theory hypotheses—demand homogeneity and Slutsky symmetry—more than the static model. The estimated mean own-price elasticities reveal that the demand in the short-run and long-run is price inelastic across all countries. Long-run and short-run income elasticities demonstrated notable variation across various commodity groups and country groups. For example, the restaurant meal is a luxury in the short-run for all countries. In the long-run, it is a necessity in developed countries and a luxury in developing countries. Food and housing are necessities; durables, transport and recreation are luxuries in developed and developing countries in the long-run and short-run.

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).

Determining the Income Elasticity of Health Expenditure in Sub Sharan Africa

The present study adds to the existing literature by grouping countries in sub-Saharan Africa into two broad health systems (public and private). A country's health system is classified as predominantly public if the average share of public health expenditure for the period under study is greater than the average share of private health expenditure; it is classified as predominantly private if the reverse is the case. The aim is to derive the income elasticities of health expenditure in other to unravel countries in the sub-region where health provision is likely to be a necessary good. To capture the dynamic nature of the relationship, the study's methodology relies on several econometric procedures (pooled mean group, mean group, and common correlated error mean group estimators). Other variables included in the model are official development assistance, the price level, population above 65 and migrant remittances. The unit root test performed showed that most of the variables in the study are not stationary at level; however, they are cointegrated in the long run, justifying the choice of the estimation techniques. The empirical results reveal that the short-run income elasticity of health expenditure in sub-Saharan Africa is 0.36 and in the long run, the value becomes 1.18 with a speed of adjustment of 0.41. This suggests that 41% of the short-run disequilibrium is dissipated in the current period. Other variables that were included in the model as controls were not statistically significant. In the reduced model that has only income as a regressor, the short-run and long-run income elasticities in the overall sample continue to remain significant, however, the income elasticity in the predominantly public health system is greater than the elasticity in the predominantly private health system. This suggests that health is more of a development issue in a predominantly private health system in sub–Saharan Africa. An implication of the present study is that citizens of sub-Saharan African countries that rely more on private financing of health expenditure are likely to be exposed to catastrophic health financing. Hence, policymakers can avert this by encouraging more public financing of healthcare provisions.

The Price and Income Elasticity of Demand for Natural Gas Consumption in Saudi Arabia

Natural gas consumption in Saudi Arabia (KSA) has grown at an annual rate of approximately 7% as a result of population growth and other economic and non-economic factors. This study aims to estimate the short- and long-run price and income elasticities of natural gas demand in Saudi Arabia using time series data from 1990 to 2020, applying the Autoregressive Distributed lag Procedure (ARDL). Employ an Error-correction model to obtain estimates of adjustment speeds with long and short-run elasticities. The elasticity of demand for natural gas was calculated by including population growth as a control variable. The short-run dynamics evaluated indicate that the speed of adjustment is 70% annually, the long-run income and the price elasticities are 0.0002 and -2.09 respectively. The short-run income and price elasticities are 0.0002, -1.17 respectively. This means that price changes have a greater impact on natural gas demand than changes in income in the short and long run. Population growth has contributed to the increase in natural gas consumption in Saudi Arabia in the short and long run. In general, based on the results, the trend of Saudi Arabia to increase the consumption of natural gas needs to maintain low prices, due to the high price elasticity of demand.

The Income Elasticity of Gross Sports Betting Revenues in Nevada: Short-Run and Long-Run Estimates

In May 2018, the Supreme Court overturned the Professional and Amateur Sports Protection Act, thereby allowing all states to offer sports betting. Prior to this, Nevada was the only state with unrestricted sports betting. Using sports betting data from Nevada, we estimate long-run and short-run income elasticities to determine the growth and volatility of sports betting as a tax base. Sports gambling grows at a similar rate as state income and is stable and insensitive to short-run shocks to income. However, the amount of money kept by casinos, and hence the state, is small compared to other traditional tax bases.

How do changes in economic activity affect air passenger traffic? The use of state-dependent income elasticities to improve aviation forecasts

This paper explores the causal relationship between income and air travel demand to provide insights for the future growth of the aviation industry, with particular focus on the recovery period after a crisis. Using US data, we estimate the long-run and short-run income elasticities of air passenger demand and we estimate how they vary over the business cycle. We find that long-run income elasticities are lower than short-run elasticities and that the short-run elasticities are lower during the recovery period following an economic downturn. A reduction in income elasticity of demand during the recovery period is consistent with an increase in precautionary savings. We then apply our results to IMF economic forecasts, and our analysis suggests that a return of the air traffic to its pre-crisis levels would be slower that the return of economic activities to their levels. Forecasts using our estimates are likely to be more accurate than one based on constant income elasticities of demand and suggest that air traffic in the US would return to its 2019 level in 2025, which is three years after the recovery of real GDP in this scenario. The use of state dependent income elasticities – in conjunction with other techniques that can control for other likely changes in demand and supply in a post-COVID world – could play an important role in helping to generate better forecasts for the aviation industry.

Determinants of the load capacity factor in China: A novel dynamic ARDL approach for ecological footprint accounting

The load capacity factor tracks a certain ecological threshold by comparing biocapacity and ecological footprint, thus enabling a comprehensive research on environmental degradation. It can be observed that the environmental degradation rises with decreasing the load capacity factor. However, until now, researchers have empirically considered environmental issues using ecological footprint, carbon dioxide, sulfur dioxide, nitrogen oxide emissions, and similar indicators. The use of these indicators can lead to the neglect of the supply side of environmental issues. To compensate for this shortcoming, this study aims to investigate the influence of human capital, natural resource rent, per capita income, and energy intensity on the load capacity factor, which focuses on environmental concerns on both the supply and demand sides. In this regard, the study utilizes a recently developed dynamic autoregressive distributed lag (ARDL) simulation model for China from 1981 to 2017. The results of dynamic ARDL demonstrates that an increase in income, energy intensity, and resource rent leads to a decline in the load capacity factor, while human capital improves environmental quality in the long-run. Moreover, according to Narayan and Narayan (2010) approach, the environmental Kuznets curve hypothesis is valid for China because the short-run income elasticity is lower than the long-run elasticity (−0.644 was compared with −0.460). Based on the results, policy recommendations for China's sustainable development are presented.

Elasticities of residential electricity demand in China under increasing-block pricing constraint: New estimation using household survey data

China has implemented the residential increasing-block electricity pricing (IBEP) policy since the second half of 2012, which is considered the most effective economic instrument in improving residential energy efficiency. Price and income elasticity are two fundamental parameters to guide both scholars and policy-makers in assessing whether and to what extend Chinese households respond to the policy. However, it presents the challenge of simultaneous determination of marginal price and electricity consumption; further, it is less examined from an empirical perspective due to the absence of micro-level data. To fill this gap, this study estimates price and income elasticity by establishing two instrumental variables, based on a unique dataset from the Chinese Residential Energy Consumption Survey 2014. Results show that the residential demand for electricity is price inelastic and that electricity is an essential commodity for households in the short run. It also shows great urban-rural disparity and regional heterogeneity of household electricity consumption behavior regarding short-run income elasticity. The estimated parameters of short-run price and income elasticities provide a valuable reference for policy-making regarding both a nationwide uniform and a differential regional perspective.

Analysing the Industrial Electricity Demand for Turkey

This study analyses the effects of some selected parameters on Turkey’s industrial electricity demand by using annual data between 1978 and 2018. In this regard, the Autoregressive Distributed Lag (ARDL) Bounds Testing method is utilized for establishing the models. The variables that used in the models of this study are electricity consumption, industrial value added, price of electricity, urbanization rate and average air temperature. According to the empirical findings, the price elasticities are estimated negative as expected which are -0.14 and -0.18 for the short and long term, respectively. On the other hand, the income elasticities have positive signs and computed as statistically significant. The short and long run income elasticities of industrial electricity demand are found as 0,15 and 0,35, respectively. Additionally, the urbanization rate and air temperature positively affect the industrial electricity demand of Turkey. These results indicate that the estimated price and income elasticities for the Turkish industrial electricity demand are very low and smaller than 1 in absolute terms. Therefore, it can be said that an increase and/or decrease in price and income as percentage is more than increase in electricity consumption for the industrial sector. In addition, these results imply that since the electricity usage in Turkey’s industrial sector is a necessity, consumers are not changing their consumption behaviour easily with respect to the price and income movements.

On the Health Care Luxury Good Hypothesis

A wide range of research has been developed in the empirical literature regarding income and price elasticities of health care expenditure (HCE). The results are mixed, as researchers employ different methodologies and data sources. The benefits of the panel data method, such as greater data variation, less collinearity, and more degrees of freedom, made it attractive among economists. However, the pooled mean group (PMG) method provides robust estimates compared to conventional methods, such as the mean group estimator and dynamic fixed-effects estimator. As such, this paper applies the PMG method to scrutinize the effect of income and price on U.S. health care consumption using a panel of 46 states. The income and price elasticities were found to be 0.85 and -0.48, respectively, which partially describes the recessionary decline in health care consumption following the Great Recession. In addition, the model reveals that the short-run income elasticity is smaller than the long-run. This confirms that U.S. health care consumption follows the permanent income hypothesis. Consequently, the short-run efficacy of public policies targeting HCE remains limited. The results of this paper suggest reconsidering and adjusting health care policies during a recession so as to avoid probable long-run adverse effects on HCE.

Regional heterogeneous drivers of electricity demand in Saudi Arabia: Modeling regional residential electricity demand

This study investigates the drivers of residential electricity demand in Saudi Arabia at a regional level for the period 1990–2018 using Structural Time Series Modeling. We find that Saudi Arabia's two waves of energy price reforms in 2016 and 2018 have had different impacts on residential electricity consumption across its regions. The empirical estimation results show that the long-run price responses of residential electricity demand vary across regions: from −0.20 in the Central region to −0.46 in the Eastern region. The short-run elasticities are −0.10 for the Central and Western regions, −0.15 in the Southern region, while the Eastern region's demand does not respond to price changes in the short run. The long run income elasticities of the regions' residential electricity demand also differ considerably: from 1.02 in the Western region to 0.27 in the Eastern region. The short-run income elasticities are 0.14 and 0.43 for the Eastern and Western regions, respectively while the residential electricity demand in the Central and Southern regions' does not react to income changes. We further estimate that hot weather conditions significantly impact all regions' residential electricity demand. Finally, we find that all regions saw some efficiency improvements in light of the energy price reforms, although there is a room for further improvements. The findings of the study can be useful for policymakers through the ways that we discussed in the paper.

Does the Turbulence of the Stock Market Terrify Consumers? Evidence from a Panel of U.S. States Using Pooled Mean Group Estimation

This paper elucidates the influence of stock market volatility on U.S. consumption using pooled mean group (PMG) estimation of 46 states over the period from 1998 to 2017. The findings confirm that the PMG estimates of the effect of stock market volatility on consumption are robust to the lag order, lag selection criteria, and outliers compared with the mean group (MG) and the dynamic fixed effect (DFE) methods. I explore that stock market volatility reduces total consumption, nondurables, durables, and services consumption. However, durables consumption responds negatively to stock market volatility more than services and nondurables consumption, respectively, and has a higher speed of adjustment to market disequilibria. Although Romer (1999) uncovered the adverse effect of stock market volatility on durables consumption during the Great Depression, the current investigation reveals that the stability of the stock market plays such a critical role in redressing market disequilibria and influences not only durables consumption but also nondurables and services consumption. In addition, the data provides evidence to reject the null of no cointegration among the models’ variables, which contrasts with the pervasive idea surrounding the consumption function. Since the short-run income elasticities are far less than the long-run ones, I reconfirm that the permanent income hypothesis (PIH) is valid in the United States. As a result, the short-run efficacy of macroeconomic policies in resolving market disequilibria is limited, as it takes time for consumers to build confidence regarding the permanency of their income.

METROPOLITAN EVIDENCE REGARDING SMALL COMMERCIAL AND INDUSTRIAL ELECTRICITY CONSUMPTION

Small commercial and industrial (CIS) electricity demand is an important category of electric energy consumption. Historically, it has received substantially less research attention than residential usage, potentially due to data constraints. This study seeks to partially fill that gap in the energy economics literature by employing a fairly unique data set for the El Paso, Texas, USA metropolitan economy that includes private capital stock estimates from 1978 through2017. The empirical model is specified using a recently developed analytical framework based on duality theory and a derived input demand function. Parameter estimation is completed using an Autoregressive-Distributed Lag model (ARDL) and an Error Correction Model (ECM). In the long-run, CIS customers in El Paso respond only to own-price and the quantity of capital stock per capita. In the short-run, CIS customers adjust their electricity usage in response to changes in all variables except for the price of electricity. The most unexpected result from this analysis is a short-run income elasticity of -0.32, indicating that CIS electricity usage decreases with economic expansion in El Paso, Texas.Keywords: Electricity usage, Metropolitan economic growth, Small commercial and industrial customers, Capital stocks, Duality theory, Derived input demandJEL Classifications: Q41; R11; M21DOI: https://doi.org/10.32479/ijeep.8233

Income Elasticity Decomposition Models and Determinants of U.S. Pharmaceutical Expenditures

Prescription drugs are the third largest component of U.S. healthcare spending, and quickly growing. This novel study provides greater information on consumer behavior in the market for prescription drugs, and how that behavior may vary due to fluctuating economic conditions, using an annual panel dataset. Specifically, the research presented applied the income elasticity decomposition methodology to prescription drug expenditures, deriving both its quality and quantity components. Per capita gross domestic product and median home values were used interchangeably to test whether alternative income concepts affect income elasticity estimates. The system generalized method of moments three-stage least squares estimation results revealed that the: (a) 0.647 short-run income elasticity comprises 0.453 and 0.194 in quantity and quality components; (b) long-run income elasticity estimate of 0.167 has 0.027 and 0.140 quantity and quality components. Pharmaceuticals were found to behave as a necessity and normal good with significant tendencies for long-run consumption shifts towards quality. Further illustrated are supply and demand-side impacts, with policy implications for Medicare and Medicaid programs, among others.

Revisiting income and price elasticities of electricity demand in Pakistan

In view of a more than decade-long power crisis in Pakistan, several studies have estimated income and price elasticities of electricity demand. These estimates are based on electricity consumption data that do not reflect actual demand due to an electricity supply shortfall of up to 6000 megawatts (MW). Moreover, previous studies accounted for power consumption data of only one of the two electric power companies, Pakistan Electric Power Company (P.E.P.C.O.), ignoring the other company K-Electric, with a share of over 15% in country’s electricity consumption. This study attempts to revisit electricity demand elasticities in Pakistan at the aggregate and sectoral level by including both P.E.P.C.O. and K-Electric and adjusting the consumption series for load shedding to reflect actual electricity demand. By employing an Autoregressive Distributive Lag model, the study finds electricity demand to be income elastic at aggregate level and in the agriculture sector in the long run, and relatively inelastic in the industrial sector. However, unlike previous studies, the electricity demand is price inelastic at all levels, which is an expected outcome in an economy facing electricity shortages. The coefficients of short-run income and price elasticities are smaller than their long-run counterparts. No evidence of cointegration is found for the commercial sector.

A Quantile Regression Approach to Panel Data Analysis of Health Care Expenditure in OECD Countries

This article investigates the variation in the effects of various determinants on the per capita health care expenditure. A total of 28 OECD countries are studied over the period 1990-2012, employing an instrumental variable quantile regression method for a dynamic panel model with fixed effects. The results show that the determinants of per capita health care expenditure do vary with the distribution of the health care expenditure growth, while the change patterns are dissimilar. Specifically, the lagged health spending has a significantly positive effect, with an effect that decreases towards the higher quantiles of of per capita health care expenditure. Per capita GDP has a significantly positive effect, both the short and long run income elasticities are smaller than one, and health care is a necessity. The density of physicians only has a significant negative effect at the lower tail of the distribution. The elderly population has the reverse effect at the lower and upper tails, and this shows an upward trend with the increase in health expenditure growth. Life expectancy has an effect similar to the proportion of the old. Variable representing Baumol's model of unbalanced growth theory has a significantly positive effect, and the change pattern of its influence shows a marked upward trend. However, one component of Baumol variable, labor productivity, only shows significant effect in the low half of the distribution. More attention needs to be paid to the influence of determinants in health expenditure study.

Estimates of price and income elasticity in Greece. Greek debt crisis transforming cigarettes into a luxury good: an econometric approach

ObjectiveDuring the past decades, smoking prevalence in Greece was estimated to be near or over 40%. Following a sharp fall in cigarette consumption, as shown in current data, our objective...

Economic Growth And Carbon Emission: A Dynamic Panel Data Analysis

The relationship between carbon dioxide emission (CO2) and economic growth is one of the crucial topics in environmental economics. This study is aimed to investigate that problem. In this study, depending on the theory of Environmental Kuznets Curves (EKC), the impact of income in carbon dioxide emission has measured for 34 OECD and 5 BRICS countries with using Dynamic Panel Data Analysis. In this regard OECD countries are classified by income groups due to the average per capita income rate of OECD to solve the homogeneity problem among OECD countries. On the other hand EKC hypothesis analysed by short and long run income elasticity which will be using for an evident that a country reduces CO2 emissions with the income increase in this study. According to the findings of the study, % 36 of the country sample coherent with the EKC hypothesis. The main encouragement for testing this relationship between economic growth and CO2 emission is leading politicians to reconsider the environmental impacts which are arising from income increase when they are taking a decision to maximizes the economic growth. Keywords: EKC; OECD; Dynamic Panel Data

Compensating Changes to the Property Tax Levy? An Empirical Test of the Residual Rule

The residual view of the property tax assumes that local governments set their levy as the difference between budgeted expenditures and expected receipts from other revenues. If localities actually follow this approach then they would adjust the levy in the short run to compensate for economic shocks. While this behavior would help stabilize overall finances, it may come at the cost of predictability, a pressing concern for officials interested in the political sustainability of their fiscal structure. Using data from counties and school districts in Georgia, this paper estimates a series of short-run income elasticities to obtain the compensating changes to the levy the residual requires. It then tests whether actual fiscal behavior is more consistent with the residual rule or with an alternative model. The results indicate that only a little more than a third of jurisdictions are found to follow the residual rule.