Heterogeneity in consumer demands and the income effect: evidence from panel data

No W07/16, IFS Working Papers from Institute for Fiscal Studies

Abstract:

All micro studies of demand are based on using time series cross sectional data. Because in such data each household is only observed once, it is only under strong identifying restrictions that one can interpret the coefficients on consumer behavior. For example, if tastes are correlated with income, the usual estimates of income elasticities from cross sectional data are biased. In contrast, panel data allows identification of the coefficients on consumer behavior in the presence of unobservable correlated heterogeneity. In this paper we make use of a unique Spanish panel data set on household expenditures to test whether unobservable heterogeneity in household demands (taste) is correlated with total expenditures (income). We find that tastes are indeed correlated with income for half of the goods considered.

JEL-codes: C33 D12 (search for similar items in EconPapers)
Date: 2007-09-24
New Economics Papers: this item is included in nep-lab and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Heterogeneity in Consumer Demands and the Income Effect: Evidence from Panel Data (2007)
Working Paper: Heterogeneity in consumer demands and the income effect: evidence from panel data (2002)
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