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Are Services Income-Elastic? Some New Evidence

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  • Falvey, Rodney E
  • Gemmell, Norman

Abstract

The hypothesis that the demand for services is income-elastic tended to find support in early empirical work. Recent studies however, adopting improved methodologies and better international data (based on purchasing power parity exchange rates), have challenged this conventional wisdom. Using an updated, disaggregated dataset covering sixty countries in 1980, this paper reestimates income and price elasticities of demand for services. It rejects the income-elastic argument overall but confirms a wide range of income elasticity estimates (above and below unity) across different types of services. Estimates are also shown to be sensitive to the a priori model of service demand. Copyright 1996 by The International Association for Research in Income and Wealth.

Suggested Citation

  • Falvey, Rodney E & Gemmell, Norman, 1996. "Are Services Income-Elastic? Some New Evidence," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 42(3), pages 257-269, September.
  • Handle: RePEc:bla:revinw:v:42:y:1996:i:3:p:257-69
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