On the Functional Form of Engel Curves: The Australian Household Expenditure Survey 1975–76*

This paper considers the properties of a class of models which is based on the Addilog demand system. These models not only fulfil the adding-up criterion but also ensure that the predicted expenditures are non-negative and a subset of these models permits the existence of saturation levels for certain commodities. A goodness of fit comparison between this class and other systems of Engel curves favours the Addilog model. The estimated expenditure elasticities compare favourably with previous estimates of Australian household expenditure patterns and it is observed that the elasticities for health and alcohol and tobacco expenditures have decreased substantially from their levels in the late 1960s.