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Heterogeneity in consumer demands and the income effect: evidence from panel data

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  • Mette Lunde Christensen

    ()
    (Institute of Economics, University of Copenhagen)

Abstract

All micro studies of demand are based on using time series cross sectional data. Because in such data each household is only observed once, it is only under strong identifying restrictions that one can interpret the coefficients on consumer behavior. For example, if tastes are correlated with income, the usual estimates of income elasticities from cross sectional data are biased. In contrast, panel data allows identification of the coefficients on consumer behavior in the presence of unobservable correlated heterogeneity. In this paper we make use of a unique Spanish panel data set on household expenditures to test whether unobservable heterogeneity in household demands (taste) is correlated with total expenditures (income). We find that tastes are indeed correlated with income for half of the goods considered.

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Paper provided by International Conferences on Panel Data in its series 10th International Conference on Panel Data, Berlin, July 5-6, 2002 with number C4-1.

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Date of creation: Mar 2002
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Handle: RePEc:cpd:pd2002:c4-1

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  1. M. Dolores Collado & Martín Browning, 1999. "-The Response Of Expenditures To Anticipated Income Changes: Panel Data Estimates," Working Papers. Serie AD 1999-19, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
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  15. Walter Beckert & Richard Blundell, 2004. "Invertibility of Nonparametric Stochastic Demand Functions," Birkbeck Working Papers in Economics and Finance 0406, Birkbeck, Department of Economics, Mathematics & Statistics.
  16. Donald J. Brown & Rosa L. Matzkin, 1998. "Estimation of Nonparametric Functions in Simultaneous Equations Models, with an Application to Consumer Demand," Cowles Foundation Discussion Papers 1175, Cowles Foundation for Research in Economics, Yale University.
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