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Retrospectives: Engel Curves

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  • Andreas Chai
  • Alessio Moneta

Abstract

Engel curves describe how household expenditure on particular goods or services depends on household income. German statistician Ernst Engel (1821-1896) was the first to investigate this relationship systematically in an article published about 150 years ago. The best-known single result from the article is "Engel's law," which states that the poorer a family is, the larger the budget share it spends on nourishment. We revisit Engel's article, including its context and the mechanics of the argument. Because the article was completed a few decades before linear regression techniques were established and income effects were incorporated into standard consumer theory, Engel was forced to develop his own approach to analyzing household expenditure patterns. We find his work contains some interesting features in juxtaposition to both the modern and classical literature. For example, Engel's way of estimating the expenditure-income relationship resembles a data-fitting technique called the "regressogram" that is nonparametric -- in that no functional form is specified before the estimation. Moreover, Engel introduced a way of categorizing household expenditures in which expenditures on commodities that served the same purpose by satisfying the same underlying "want" were grouped together. This procedure enabled Engel to discuss the welfare implications of his results in terms of the Smithian notion that individual welfare is related to the satisfaction of wants. At the same time, he avoided making a priori assumptions about which specific goods were necessities, assumptions which were made by many classical economists like Adam Smith. Finally, we offer a few thoughts about some modern literature that builds on Engel's research.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.24.1.225
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Bibliographic Info

Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 24 (2010)
Issue (Month): 1 (Winter)
Pages: 225-40

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Handle: RePEc:aea:jecper:v:24:y:2010:i:1:p:225-40

Note: DOI: 10.1257/jep.24.1.225
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References

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  1. DiNardo, John & Tobias, Justin, 2001. "Nonparametric Density and Regression Estimation," Staff General Research Papers 12020, Iowa State University, Department of Economics.
  2. Joachim Engel & Alois Kneip, 1996. "Recent approaches to estimating Engel curves," Journal of Economics, Springer, vol. 63(2), pages 187-212, June.
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Cited by:
  1. Kaus, Wolfhard, 2013. "Beyond Engel's law - A cross-country analysis," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 47(C), pages 118-134.
  2. Abdur Rehman & Wang Jian & Zhang Runqing, 2014. "Estimation of Urban-Rural Expenditure and Household Size Elasticities of Food Items in Pakistan: - Evidence From PSLM Survey," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 4(2), pages 183-190, February.
  3. Nicholas Oulton, 2011. "The wealth and poverty of nations: true PPPs for 141 countries," LSE Research Online Documents on Economics 48941, London School of Economics and Political Science, LSE Library.
  4. Andreas Chai & Alessio Moneta, 2012. "Back to Engel? Some evidence for the hierarchy of needs," Journal of Evolutionary Economics, Springer, vol. 22(4), pages 649-676, September.
  5. Anaïs Carlin, 2013. "Modeling Luxury Consumption: An Inter-Income Classes Study of Demand Dynamics and Social Behaviors," GREDEG Working Papers 2013-13, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis, revised May 2014.
  6. Leonhard Lades, 2013. "Explaining shapes of Engel curves: the impact of differential satiation dynamics on consumer behavior," Journal of Evolutionary Economics, Springer, vol. 23(5), pages 1023-1045, November.
  7. Armagan Tuna Aktuna Gunes & Christophe Starzec & François Gardes, 2013. "A new estimation of the size of informal economy using monetary and full expenditures in a complete demand system," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00841346, HAL.
  8. Matteo Barigozzi & Alessio Moneta, 2012. "Identifying the Independent Sources of Consumption Variation," LEM Papers Series 2012/16, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  9. Barigozzi, Matteo & Alessi, Lucia & Capasso, Marco & Fagiolo, Giorgio, 2009. "The distribution of households consumption-expenditure budget shares," Working Paper Series 1061, European Central Bank.
  10. Leonhard K. Lades, 2012. "The impact of differential satiation dynamics on changing consumer behavior, wellbeing, and innovative activity," Papers on Economics and Evolution 2012-16, Max Planck Institute of Economics, Evolutionary Economics Group.
  11. Roger Fouquet, 2013. "Long Run Demand for Energy Services: the Role of Economic and Technological Development," Working Papers 2013-03, BC3.
  12. Ulrich Witt, 2011. "Sustainability and the Problem of Consumption," Papers on Economics and Evolution 2011-16, Max Planck Institute of Economics, Evolutionary Economics Group.
  13. Andreas Chai & Alessio Moneta, 2014. "Escaping Satiation Dynamics: Some Evidence from British Household Data," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 234(2-3), pages 299-327, April.
  14. Wolfhard Kaus, 2012. "Beyond Engel s Law - Pursuing an Engelian Approach to Welfare A Cross Country Analysis," Jena Economic Research Papers 2012-028, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  15. Bjarne Jensen & Paul Boer & Jan Daal & Peter Jensen, 2011. "Global restrictions on the parameters of the CDES indirect utility function," Journal of Economics, Springer, vol. 102(3), pages 217-235, April.

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