Households’ expenditure elasticities for transport products and services: a geo-demographic approach

In this paper we move forward the traditional approach to the estimation of a single, aggregate, expenditure elasticity for the commodity transport. In particular, we obtain separate elasticity measures for motoring expenditures and transport services, while also taking into account geo-demographic differences between households. To this end, we create a pseudo-panel for the United Kingdom (UK), using an exogenous clustering of households (Output Area Classification, OAC), thanks to which we are able to identify groups of geographically distant households, sharing the same characteristics, lifestyles, and needs. We then test whether the perception of transport services as inferior, necessity, or luxury goods significantly differ within clusters. Results show that, overall, total transport expenditure and motoring expenditure are weak luxuries, whereas bus and rail expenditures are strongly luxuries. Sample segmentation by OAC clusters shows some evidence of different income elasticities for different groups of consumers: transport in general, and motoring expenditure in particular, are necessities rather than luxuries for higher income groups.