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.     

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.     

Export demand elasticities and productivity as determinants of growth: estimates for Mauritius

In this article, we combine the export led and import led growth hypotheses in a growth model in which the importation of foreign capital goods and the demand elasticities of own export products explain the growth opportunities and the technical progress of developing countries. This model, based on imported capital goods, uses Mauritius’ data on capital investment, employment, export partners’ growth and terms of trade to estimate price and income elasticities of export demand, total factor productivity growth and economies of scale. These elasticities are then used to assess how the growth in export partners’ income is converted into domestic growth. The implications of the presence of low or high export demand elasticities are discussed by relating them to various strands of trade and growth literature. Based on the results of this estimation, we also calculate steady state growth rates, engine and handmaiden effects of growth as well as the dynamic steady state gains from trade for this latecomer export economy. The implications of steady state results are also discussed in the light of the Mauritian employment and growth perspectives.     

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.     

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.     

On the effect of income and relative price on demand for health care: EC evidence

This paper demonstrates that the relative price of health care could be used to explain the conflicting results of the empirical studies which attempt to measure the income elasticity of demand. Our empirical results, based on a conventional model and cross-national data set for the EC, show that whereas health care may be labelled as a luxury good, the large income effect can be interpreted as merely offsetting the price effect.     

Arithmetic visibility estimates for OECD countries with three government levels

The importance of fiscal visibility has been well known for a long time but attempts to quantify it by taking the internal structure of every type of revenue and expenditure in a fiscal system into consideration are recent. Indicators used until now rest on structural parameters combined in a multiplicative way with a 0 estimate always resulting in at least one of such factors being null. An alternative way to measure fiscal visibility consists of combining parametric values in an additive instead of a multiplicative form. Calculations can then show estimates which are much more sensitive to the initial values. The aim of this contribution is to present new additive indicators that are applied to several territorial government levels in Australia, Austria, Canada, Germany, Spain, Switzerland, and the U. S. Comparisons, conclusions, and comments are offered for general development. An earlier version of this article was presented at the 55th International Atlantic Economic Conference, Vienna, Austria, March 12–16, 2003. The author is indebted to participants of this conference for helpful comments. The responsibility for any errors or shortcomings are the author's.     

Some international evidence on the stability of aggregate import demand function

This paper empirically analyses the stability of the aggregate import demand function for G7 countries. The standard cointegration test and a test developed by Gregory and Hansen are performed. The results of standard cointegration tests suggest that there is no stable cointegrating relation between real import, real GDP and relative import price for all G7 countries. The cointegrating relation is empirically supported for France and Germany if structural change for cointegrating vector is explicitly taken into consideration. The cointegrating relation is empirically rejected for Canada, Italy, Japan, the UK and the USA. Thus, the stimulation of domestic business conditions will not necessarily link the quantity of imports for these five countries.     

Capital Flight from Beautiful Places: the case of three Caribbean countries

This paper examines capital flight from Barbados, Jamaica, and Trinidad and Tobago, for the period 1971–87. A simple OLS model is used to investigate econometrically the causes of Caribbean capital flight. External debt, real interest rate differentials and the level of social instability are found to be significant causes of capital flight.     

Keynes versus Wagner: public expenditure and national income for three African countries

The public expenditure/income hypothesis has long been debated in economics. Following Keynes, public expenditure is seen as an exogenous factor to be used as a policy instrument to influence growth. On the other hand, Wagner argues that expenditure is an endogenous factor or an outcome, not a cause, of growth in national income. The purpose of this paper is to apply both the Granger and Holmes-Hutton statistical procedures to test the income-expenditure hypothesis for three African countries-Ghana, Kenya and South Africa. We find that the hypothesis of public expenditure causing national income is not supported by the data for these African countries.     

Estimating anticipated and nonanticipated demand elasticities for cigarettes in Spain

This paper will test whether tobacco consumption generates addiction in Spanish people. If this is the case, can such addiction be explained in the context of rational addiction theory? Elasticities are also obtained in the cases where price variations can be anticipated or, by contrast, where they cannot. The results first reveal the addictive and rational character of Spanish tobacco consumption. With respect to estimated demand elasticities, we find the expected results, namely that the anticipated values are higher than the nonanticipated values and that the long-run effects are also higher than the short-run effects.     

Error-correction based panel estimates of the demand for money of selected Asian countries with the extreme bounds analysis

This paper uses the extreme bounds analysis (EBA) of Leamer (1983, 1985) to analyze the robust determinants of the demand for money in a panel of 17 Asian countries for the period 1970 to 2009. These robust determinants are found to be unit root variables. Therefore, cointegration between these variables is tested with a recent time series panel method developed by Westerlund (2007). This method uses the error-correction formulation and has more power against the null of no cointegration. The results show that there is a well-defined long-run demand for money. Using the lagged error correction term from the estimated cointegrating equation, the short-run dynamic relationships are estimated. This paper, thus, suggests some useful guidelines to estimate other relationships with panel data.     

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.     

Exploring the effects of aggregation error in the estimation of consumer demand elasticities

Errors introduced by using aggregate data in estimating a consumer demand model have long been a concern. We study the effects of such errors on elasticity estimates derived from AIDS and QUAIDS models. Based on a survey of published articles, a generic parameterization of the income distribution, and the range of Gini coefficients reported for 28 OECD countries, we generate and analyze a large number of “observations” on the differences between elasticities calculated at the aggregate level and those calculated at the micro level. We suggest a procedure for evaluating the likely range of aggregation error when a model is estimated with aggregate data.     

Source of income effects for demand decisions and taxable consumption

The relationship between sources of income and demand decisions by the household is examined here with an eye toward the ramifications on consumption tax bases. Income sources may be important when households attach psychic and transaction costs to individual purchases or when sources are assigned via a mental accounting process. In either case, general and specific sales tax bases may be affected by changes in income composition. Empirical results indicate two important findings. First, tax exemptions can introduce significant income source effects for a general consumption tax base. Second, the importance of differential tax rates for gasoline and food-at-home strongly depends on the mix of labour, capital, retirement and non-retirement transfer pay.     

The demand for money during a period of inflationary expectations. Some FIML based estimates for Greece

This paper estimates and tests a model of the demand for money function, which uses the public's expectations of future inflation as a proxy of the opportunity cost of holding money. The hallmark of the paper is that expectations are rational inMuth sense. The cross-equation rational expectations restrictions are derived and then tested, using quarterly Greek data of the high inflation period 1973I to 1981 IV. The paper concludes that the evidence is consistent with the rational expectations assumption and supports the adopted specification of the money demand function.     

Non-stationarity and the import demand for virgin olive oil in the European Union

The aim of this study is to analyse the importation of virgin olive oil to European Union countries, paying special attention to the Spanish export contribution. The method used is based on the estimation of an imports demand system. The novelty of the paper lies not in the modelling approach but in the explicit consideration of the univariate characteristics of series that is included in the analysis. Since prices are non-stationary, cointegration among them has been tested. Results indicate that they are cointegrated and that homogeneity holds. As a result, relative prices are included in the imports demand system. Structural change is also considered so as to account for the entrance of both Spain and Greece into the EU during the period studied. Results demonstrate the leadership of Spain within the EU virgin olive oil market as well as the increasing competitiveness of Greek oil.