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How Economic Contractions and Expansions Affect Expenditure Patterns

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  • Wagner A. Kamakura
  • Rex Yuxing Du
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    Abstract

    In this study, we attempt to understand how household budget allocations across various expenditure categories change when the economy is in recession or expansion. The common assumption is that a household’s tastes would not change as a function of economic conditions and therefore any adjustments in expenditure patterns during economic contractions/expansions would simply be due to changes in the consumption budget. Standard economic models translate these budgetary effects into lateral movements along a set of fixed Engel curves, which relate category expenditure shares to total expenditures. We propose and test a conceptual framework based on the notion of relative consumption, which prescribes that, for any given total consumption budget, expenditure shares for positional goods/services will decrease during a recession, while shares for nonpositional goods/services will increase (i.e., shifting the entire Engel curve upward or downward, depending on the nature of the expenditure category and the economic conditions).

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    File URL: http://www.jstor.org/stable/pdfplus/10.1086/662611
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    File URL: http://www.jstor.org/stable/full/10.1086/662611
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    Bibliographic Info

    Article provided by University of Chicago Press in its journal Journal of Consumer Research.

    Volume (Year): 39 (2012)
    Issue (Month): 2 ()
    Pages: 229 - 247

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    Handle: RePEc:ucp:jconrs:doi:10.1086/662611

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    Web page: http://www.journals.uchicago.edu/JCR/

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