A dynamic analysis of expenditure patterns in rural India

Recent generalisations of the Linear Expenditure System have concentrated on its restrictive assumption of separable preferences but underplayed its equally restrictive assumption of linearity in income, i.e., constant marginal budget shares. This reflects the data base which has usually been long time series of disaggregated consumer expenditure data. Such generalisations are inappropriated for developing countries which rely on highly aggregated commodity expenditure data from budget surveys with more variation in income responses is introduced, variation in prices. A general procedure for non-linearising income but rather limited applied to some recent LES generalisations to generate still further geenralisations and then used to analyse rural India's expenditure behaviour. The results decisively support the suggested generalisation and, also, provide evidence in favour of dynamic behaviour and habit persistence on budget data.