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Necessity or Luxury Good? Household Energy Spending and Income in Britain 1991-2007

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  • Helena Meier, Tooraj Jamasb, and Luis Orea

Abstract

The residential demand for energy is growing steadily and the trend is expected to continue for the foreseeable future. Household spending on energy services tends to increase with income. We explore household total spending on energy and on electricity and gas separately. We use an extensive British household panel data with more than 77,000 observations for the 1991-2007 period to explore the determinants of energy spending. We analyse income as a main driver of spending on energy and draw Engel spending curves for these. The lack of household level price data in liberalized retail energy markets is addressed by a new modelling approach to reflect within and between regional differences in energy prices. Also, long run changes in energy spending of households are approximated by exploring unit effects. The main results show the Engel spending curves are S-shaped. Income elasticities for energy spending are U-shaped and lower than unity, suggesting that energy services are a necessity for households. Moreover, the findings show that the income elasticity of energy spending is somewhat higher in the long run. Finally, we find a dynamic link between energy spending and income changes rather than a fixed budget threshold where basic needs are met. Hence, we suggest policy approaches that enable households to find their individual utility maximizing energy spending levels.Keywords: Burr distribution; Durations; Range; Score; Un-observed components; Weibull distribution
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  • Helena Meier, Tooraj Jamasb, and Luis Orea, 2013. "Necessity or Luxury Good? Household Energy Spending and Income in Britain 1991-2007," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
  • Handle: RePEc:aen:journl:ej34-4-06
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    Cited by:

    1. Schulte, Isabella & Heindl, Peter, 2017. "Price and income elasticities of residential energy demand in Germany," Energy Policy, Elsevier, vol. 102(C), pages 512-528.
    2. Romero-Jordán, Desiderio & del Río, Pablo & Peñasco, Cristina, 2016. "An analysis of the welfare and distributive implications of factors influencing household electricity consumption," Energy Policy, Elsevier, vol. 88(C), pages 361-370.
    3. repec:aen:journl:ej38-si1-atalla is not listed on IDEAS
    4. Salomé Bakaloglou & Dorothée Charlier, 2018. "Energy Consumption in the French Residential Sector: How Much Do Individual Preferences Matter?," Working Papers 1803, Chaire Economie du climat.
    5. Hasan, Syed Abul & Mozumder, Pallab, 2017. "Income and energy use in Bangladesh: A household level analysis," Energy Economics, Elsevier, vol. 65(C), pages 115-126.
    6. Hache, Emmanuel & Leboullenger, Déborah & Mignon, Valérie, 2017. "Beyond average energy consumption in the French residential housing market: A household classification approach," Energy Policy, Elsevier, vol. 107(C), pages 82-95.
    7. Rodríguez-Álvarez, A. & Orea, L. & Jamasb, T., 2016. "Fuel poverty and well-being: a consmer theory and stochastic fronteir approach," Cambridge Working Papers in Economics 1668, Faculty of Economics, University of Cambridge.
    8. Desiderio Romero-Jordán & Pablo Del Río & Cristina Peñasco, 2015. "An analysis of the welfare and distributive implications of factors influencing household electricity consumption," Working Papers 1503, Instituto de Políticas y Bienes Públicos (IPP), CSIC.
    9. Curtis, John & Pentecost, Anne, 2014. "Changes in Household Fuel Expenditure Associated with Improvements in Building Energy Efficiency," Papers WP478, Economic and Social Research Institute (ESRI).

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