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Income-expenditure elasticities of less-healthy consumption goods

Author

Listed:
  • Adam Hoffer
  • Rejeana Gvillo
  • William Shughart
  • Michael Thomas

Abstract

Purpose - The purpose of this paper is to identify how consumption of 12 goods – alcohol, cigarettes, fast food, items sold at vending machines, purchases of food away from home, cookies, cakes, chips, candy, donuts, bacon, and carbonated soft drinks – varies across the income distribution by calculating their income-expenditure elasticites. Design/methodology/approach - Data on 22,681 households from 2009-2012 from the Bureau of Labor Statistics’ Consumer Expenditure Survey were used. The data were analyzed using ordinary least squares regressions and Cragg’s double hurdle model which integrates a binary model to determine the decision to consume and a truncated normal model to estimate the effects for conditional (y>0) consumption. Findings - Income had the greatest effect on expenditures for alcohol (0.314), food away from home (0.295), and fast food (0.284). A one percentage-point increase in income (approximately $428 at the mean) translated into a 0.314 percentage-point increase in spending on alcoholic beverages (approximately $1 annually at the mean). Income had the smallest influence on tobacco expenditures (0.007) and donut expenditures (−0.009). Research limitations/implications - Percentage of a household’s discretionary budget spent on the studied goods falls substantially as income gets larger. Policies targeting the consumption of such goods will disproportionately impact lower income households. Originality/value - This is the first manuscript to calculate income-expenditure elasticities for the goods studied. The results allow for a direct analysis of targeted consumption policy on household budgets across the income distribution.

Suggested Citation

  • Adam Hoffer & Rejeana Gvillo & William Shughart & Michael Thomas, 2017. "Income-expenditure elasticities of less-healthy consumption goods," Journal of Entrepreneurship and Public Policy, Emerald Group Publishing Limited, vol. 6(1), pages 127-148, April.
  • Handle: RePEc:eme:jepppp:jepp-03-2016-0008
    DOI: 10.1108/JEPP-03-2016-0008
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    Citations

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    Cited by:

    1. Michael David Thomas, 2019. "Reapplying behavioral symmetry: public choice and choice architecture," Public Choice, Springer, vol. 180(1), pages 11-25, July.
    2. James B. Bailey & Diana W. Thomas & Joseph R. Anderson, 2019. "Regressive effects of regulation on wages," Public Choice, Springer, vol. 180(1), pages 91-103, July.

    More about this item

    Keywords

    Consumption goods; Income expenditure elasticity; Obesity policy; Selective tax policy; Sin tax; D12; Q18; I18;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy; Animal Welfare Policy
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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