The measurement of income and price elasticities

In a complete system of disaggregated demand equations, the econometrician must limit himself to the measurement of a small number of parameters for each commodity. Since interest often focuses on the income and own-price elasticities for each good, it is natural to look for models which allow independent measurement of these while providing plausible assumptions about the less essential responses. This paper surveys a number of common theoretical specifications which purport to do this, and argues that these are unsatisfactory. The conclusions are supported by an empirical comparison on British data of the results of three models, one of which is new and is designed to remedy some of the deficiencies of standard practice.     

Dynamic elasticities of tax revenue: evidence from the Czech Republic

Tax revenue elasticities with respect to tax bases are key parameters for the modeling of public finances. Yet the existing studies estimating these elasticities for emerging countries disregard the effects of tax reforms on tax revenue, which renders their estimates inconsistent. We introduce a framework for estimating both short- and long-run tax revenue elasticities using quarterly data adjusted for the effects of reforms. Our results suggest that the long-run elasticities in the Czech Republic are 1.4 for wage tax, 0.9 for value added tax, 1.7 for profit tax and 1 for social security contributions. The adjustment process for value added tax and social security contributions is fast, but for the remaining two categories, it is important to distinguish between the short- and long-run elasticities: the initial response of revenue to changes in the bases is weak. In the case of wage tax it takes half a year for the elasticity to surpass unity.     

Pooling surveys in the estimation of income and price elasticities: An application to Tunisian households

This paper presents a methodological extension of Deaton's (1990) model for estimating price elasticities, by pooling Tunisian data from several surveys to improve the inter-cluster variability of unit values which is one of the key elements used in the derivation of these elasticities. Since the surveys cover a relatively long period, possible structural changes in consumption behaviour occurring over time are accounted for by postulating that certain response coefficients of the basic model vary from one survey to the other. The own price and cross price elasticities calculated using appropriate estimates of the extended model are satisfactory both from the economic point of view of their sign and the statistical point of view of their significance and superior to those obtained using a single survey. First version received: April 2000/Final version received: June 2001 RID="*" ID="*"  The authors would like to thank Angus Deaton and anonymous referees for useful comments and suggestions.     

The demand for residential electricity: new evidence on time-varying elasticities

This study employs a generalized functional form to examine demand for residential electiricity. The appropriatenes of the conventional double-log and linear forms are tested. Time-varying elasicities are estimated. Major findings are summarized as follows:(1) the double-log and linear forms can be rejected at the 0.05 and 0.01 levels, respectively; (2) long-run own-price elasticities declined in absolute value consistently from 2.13 to 1.19 during the period 1950–87; (3) long-run income elasticities also decreased from 1.29 to 0.97 during the same period; and (4) long-run corss-Price elasticities with respect to the price of natural gas dropped form 0.40 to 0.29. These results may be heplful to decision makers in determining the change in total revenues owning to the change in prices, pricing strategies, the effectiveness of energy conservation programmes, the effect of rising real income on the demand for residential electricity and future demand.     

Some estimates of the price and income elasticities of import demand for three Caribbean countries

This paper provides estimates of the short-run and long-run price and income elasticities of import demand for three developing economics. The econometric evidence confirms that devaluation is an appropriate policy to correct for balance of payments disequilibrium in the Caribbean, and it supports the IMF stabilization approach.     

Determinants of price elasticities for private labels and national brands of cheese

An Almost Ideal Demand System model is developed and used to estimate price elasticities for US cheese sold at retail. Growing consumption of cheese coupled with fierce competition between private labels and national brands serves as motivating factors for this study. Per capita consumption of cheese grew by 75% during 1980–2004 and private labels captured a rising share of this growth. Private labels today account for 35% of market share; national brands, for the remaining 65%. Kraft accounts for 45% of national brands, but price increases for Kraft brands led to a sizeable price gap between its brands and private labels. This gap helped to stimulate growth of private labels. Marketing managers seek to capitalize on both growing cheese sales and price gaps for brands. Relevant information for marketing managers is consumer sensitivity to price changes. This study uses 69 weeks of scanner data, with consumers segmented by income levels to derive price elasticities for both lower-and higher-income consumers. Results show lower-income consumers to be more price sensitive. If large price gaps are maintained, the results suggest continued growth of private labels. Yet, meta-analyses for this study suggest that Kraft could lower the price gap and regain market share.     

Long-run income and price elasticities of demand for Colombian nontraditional exports: a multivariate cointegration framework

A long run income and price elasticities of demand is estimated for Colombian nontraditional exports through a multivariate cointegration analysis. Based on the combination of cointegration and exogeneity concepts and the inclusion of the complete dynamic system, the paper shows the existence of a long-run relationship among nontraditional exports, relative price and foreign demand, and higher long-run elasticities than those provided by the long-run cointegration vector coefficients that are usually reported in the trade literature.     

Aggregation effects on price and expenditure elasticities in a quadratic almost ideal demand system

Abstract.  While it is well known that demand elasticities calculated at the macro level will in general differ from those calculated at the micro level because of aggregation effects, there remain the questions of how large the effects are and how they vary with the degree of inequality in the income distribution. We explore these questions with models based on a quadratic version of the Almost Ideal Demand System. We investigate the elasticity differences theoretically and then calibrate the models and generate numerical results, using income data for seven countries with widely different distributions. The aggregation effects are found generally to be rather small, even with highly unequal income distributions.     

Substitution elasticities between durable and nondurable goods in the United States: New evidence from the dynamic Laurent system

This paper uses the dynamic Laurent demand system to jointly estimate the service flows from durable and nondurable goods. The parameter estimates are used to obtain the Morishima elasticity of substitution between goods for the United States from 1960:1 to 1991:4. One of the significant results of this study is that the Morishima elasticities of substitution vary over time instead of being constant. This result implies that the use of the CES functional form gives a poor approximation of the demand system for the data used in this paper. Another important result is that consumers adjust to their long-run equilibrium holding of consumption goods slowly rather than quickly.     

Import penetration and returns to tasks: recent evidence from the Peruvian labour market

This paper provides original evidence on the impact of import penetration on wages of individuals performing manual/cognitive task-intensive jobs in the Pe     

Petrol prices,oil price rises and oil price falls: some evidence for the UK since 1972

This paper examines the relationship between retail petrol prices, excise duties and crude oil prices in the UK over the period 1973–1988. The existence of a stable relationship between the petrol price, level of excise duty and spot oil price is confirmed through use of the cointegration approach. Although the speed of reaction of petrol prices to changes in the crude price depends on whether crude prices are rising or falling, any asymmetry in the pricing response is virtually absent after an adjustment period of only four months.     

Factor price overshooting with trade liberalization: theory and evidence

This paper develops an intra‐industry trade model with skilled and unskilled labor as factors of production, endogenous accumulation of skilled labor and firm heterogeneity in factor intensities to examine the effect of trade reforms on factor prices. Since exporters are more skill intensive than non–exporters, a decrease in trade barriers initially increases wage inequality between skilled and unskilled workers, as a result of an increase in the relative demand for skilled labor. Over time, however, as agents respond to the change in relative wages by investing in skilled labor, the relative wage of skilled labor decreases. Evidence from Chilean plant–level data supports the idea of factor price overshooting with trade liberalization.     

The import price index with trade barriers: theory and evidence

The standard economic import price index hinges on an assumption of free trade. Applying the index to situations with barriers to trade yields biased results compared to a true import price index. To circumvent this problem, it is common to use average prices, such as unit values, as an aggregator function. However, the use of average prices is not rooted in economic theory. In this paper, I generalise the economic import price index to allow for barriers to trade in the form of quantity constraints. To illustrate the theoretical framework, I use the case of imports of textiles to Norway from 1988 to 1997. I find that a standard economic import price index, such as the Laspeyres index, grossly overstates import costs and that this bias is significantly reduced by using unit values.     

Inertial inflation, indexation and price stickiness: evidence from Brazil

This paper evaluates the inertial inflation hypothesis for Brazil. The hypothesis posits that indexation created a feedback mechanism such that one-time supply shocks were fully transmitted into permanent changes in inflation. A theoretical model is used to show that this outcome is based on the assumption of perfect price flexibility. However, with price stickiness indexation does not produce inertial inflation. The degree of inertia is then compared for two periods: one without indexation (1945–1963), and one with indexation (1969–1985). Finally, vector-autoregressive representations are estimated for the latter period, allowing for price stickiness. The empirical results do not support the hypothesis.     

Import price dynamics in major advanced economies and heterogeneity in exchange rate pass-through

This article aims at showing heterogeneity in the degree of exchange rate pass-through to import prices in major advanced economies at three different levels: (1) across destination markets; (2) across types of exporters [distinguishing developed economy (DE) from emerging economy (EE) exporters] and (3) over time. Based on monthly data over the period 1991–2007, the results show first that large destination markets exhibit the lowest degree of pass-through. The degree of pass-through for goods imported from EEs is also significantly lower than for those from DEs. Regarding the evolution over time, no clear change in pricing behaviours can be identified and the well-identified decline in the exchange rate pass-through between the 1980s and 1990s appears to have stopped during the period considered.     

Transitional price rises with the adoption of the euro: aggregate and disaggregate sector evidence

This paper presents a time‐series regression analysis of price inflation at the time of the euro currency changeover in January 2002. Cross‐equation tests on 12 euro countries and three non‐euro EU countries are used to identify significant price changes around that time. For a small number of product and service categories, positive price changes immediately after the euro changeover suggest the possible existence of menu costs, sellers' rounding up of prices or buyers' temporary rational inattention. However, the lack of evidence for reduced inflation immediately prior to the euro changeover suggests menu costs are not important.     

The effect of entry restrictions on price: evidence from the retail gasoline market

I exploit a change in Spanish regulations to test the effect of the relaxation of entry restrictions on the equilibrium retail price of diesel. In February 2013, a Central Government reform permitted gasoline stations to operate in industrial and commercial areas. Over the following 2-year period, this deregulation led to a high number of new market entrants in these newly designated free entry areas. By isolating markets exposed to entry and markets unaffected by new entrants, and adopting a difference-in-difference approach, results show that gasoline stations exposed to a new market entrant within a one-mile radius lower their prices by an average 1.04%. This result is significant, representing almost one fifth of the average retail margin. Additionally, the results show that the reduction in the equilibrium price is caused by the first market entrant and that the effect decreases over time.     

Institutional arrangements and price rebalancing: empirical evidence from the United States and Europe

This paper explores the rebalancing of prices for voice service in the United States (US) and the European Union (EU) from conceptual and empirical perspectives. We determine the overall cost and structure of a standardized basket of residential and business services. Our data indicate that during the 1994–2000 period the degree of rate rebalancing was significantly higher in the EU than in the US. While the developments at the level of EU Member States are more heterogeneous and the process of rate rebalancing is not completed, these findings correspond to the predictions derived from our comparative institutional analysis.