Feles: The functionalized extended linear expenditure system: Theory,estimation procedures and application to individual household consumption expenditures involving socioeconomic and sociodemographic characteristics

This article introduces the Functionalized Extended Linear Expenditure System, FELES, a new extension on Lluch's familiar Extended Linear Expenditure System. Household individual expenditures with respect to ‘subsistence expenditures’ and ‘partial marginal propensities to consume’ are made explicitly dependent on socioeconomic and sociodemographic characteristics in a system-wide approach. A restricted maximum likelihood estimator for relatively small systems with few explanatory variables and an iterative estimation procedure for larger systems with an extensive set of explanatory variables are proposed. The complete FELES then is applied to cross-sectional data with more than 47,000 German households. Stone's LES and Lluch's ELES are first quantified too on a German data base of this extent.