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.     

Industrial sector fuel price elasticities following the first and second major oil price shocks

Estimated fuel price elasticities are consistent with reactions following the second major oil shock, having been significantly different from reactions to its predecessor. In turn, elasticities for both sub-periods are not well represented by those estimated for 1960–1982 as a whole.     

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.     

Charitable contributions and tax price elasticities for nonitemizing taxpayers

This paper uses a balanced panel of taxpayers to examine the price and income elasticities for charitable contributions for nonitemizing taxpayers. One-way and two-way static fixed effects models are used to estimate these elasticities. Additionally, this paper incorporates dynamic panel analysis within the constraints of the data. The data are from the Individual Tax Model File panel of taxpayers, maintained by the University of Michigan. This paper finds no significant price elasticities for nonitemizers. The results of this paper would argue that there is no compelling economic reason to extend charitable contribution deductions to nonitemizers.     

A simple method of estimating price elasticities in international trade

The differential production theory approach is applied to world trade matrices of 1971 and 1975, which yields a price elasticity estimate of the demand for foreign food of about ?0.7. The elasticity estimates for raw material and manufactures are both between ?0.3 and ?0.4.     

The competitive nature of the nursing home industry: price mark ups and demand elasticities

Nursing home markets are likely to deviate from a competitive structure because of limitations on entry imposed by Certificate of Need (CON) regulations and the potential for product differentiation along such attributes as location, religious affiliation and quality. This paper investigates the structure of nursing home markets in New York State by calculating price mark ups and residual private pay demand elasticities. It shows that the residual demand elasticity is bound by estimates based on price mark ups above marginal costs and above Medicaid rates. This approach allows estimation of demand elasticities in all markets, whether or not CON regulations constrain bed supply. Mean price elasticities (in absolute value) calculated for nursing homes in New York State in 1991 ranged from 3.46 to 3.85.     

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.     

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.     

Income and price elasticities of demand at low levels of real income

For levels of real per capita income starting at 3% of the U.S. per capita income in 1975, income and price elasticities of demand are tabulated. The prominent role of food consumption for low-income households is emphasized.     

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.     

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.     

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.     

Income and price elasticities of electricity demand in Australia: Evidence of state‐specific heterogeneity

This paper estimates country‐wide and state‐level income and price elasticities of electricity demand in Australia for the period 1999Q1–2013Q2 using the National Electricity Market data and the autoregressive‐distributed lag model. The results suggest that the long‐run income and price elasticities are inelastic and are statistically significant with theoretically consistent signs. The country‐wide income and price elasticities are estimated to be 0.41 and ?0.38, respectively. It is also found that there exists state‐specific heterogeneity in both speed and magnitude of the electricity consumption adjustment in response to changes in income and electricity price. These results have important policy implications, including the need to use state‐specific elasticities in the scenario analysis of the energy pricing policy.     

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.     

The price of the euro: evidence from sovereign debt markets

The objective of this article is to ascertain how the Economic and Monetary Union (EMU) in Europe has affected its members’ long-term government bond yields. In order to estimate the effect, this article utilizes a synthetic control approach. The main finding is that the majority of the member countries did not receive economic gains from the EMU in sovereign debt markets. Synthetic counterfactual analysis finds strong evidence that Austria, Belgium, Finland, France and the Netherlands have paid a positive and substantial euro-premium in their 10-year government bonds since the adoption of the single currency. After the most recent financial crisis, government bond yields have been higher in all member countries compared to the situation that would have occurred without the monetary unification. This article concludes that from the viewpoint of sovereign borrowing, it would be beneficial for a country to maintain its own currency and monetary policy.     

Relative price variability and inflation: The Italian evidence

Using Italian data from 1954 to 1983, it is found that relative price variability and inflation are positively correlated only during the 1970s and the early 1980s, when their relationship appears to be largely induced by movements in the oil price, rather than by aggregate demand shocks. This result is consistent with the findings of Fischer, 1981, Fischer, 1982 for the U.S. and Germany (although, in contrast to the evidence for these two countries, no relationship can be detected between unexpected inflation and relative price variability). Furthermore, the comparison between the three countries provides substantial support for the hypothesis — tentatively advanced by Fischer (1982) — that the correlation between relative price variability and inflation is enhanced by monetary accommodation of real shocks. There is also evidence that in Italy both variables have been considerably affected by exchange rate movements.     

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.