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Intertemporal propensity to consume

Author

Listed:
  • Stephan B. Bruns

    (University of Kassel)

  • Alessio Moneta

    (Scuola Superiore Sant’Anna)

Abstract

Cross-sectionally estimated Engel curves tend to exhibit shapes that imply ultimately decreasing marginal propensities to consume as income rises. This suggests at first sight a tendency to slow down in private consumption. This tendency has to be reconsidered taking into account the fact that Engel curves usually shift significantly over time. We introduce the notion of “intertemporal propensity to consume” to shed more light on the drivers and patterns of the evolution of Engel curves. Using this notion, we are able to identify and measure the direction of the expansion path of consumption as time goes by, while controlling for household characteristics and price levels. Using German household data, we show that, over time, the intertemporal propensity to consume systematically offsets the consumption paths implied by the marginal propensity to consume that is derived cross-sectionally at one point in time. We claim that this difference between marginal and intertemporal propensity to consume should be ascribed to variations in the socioeconomic structures that occur over time and that may be linked both to the supply side (innovation and technical change) and the demand side (learning dynamics of consumers). We also show that changes in relative prices play a minor role in the evolution of Engel curves.

Suggested Citation

  • Stephan B. Bruns & Alessio Moneta, 2017. "Intertemporal propensity to consume," Journal of Evolutionary Economics, Springer, vol. 27(2), pages 295-314, April.
    • Handle: RePEc:spr:joevec:v:27:y:2017:i:2:d:10.1007_s00191-016-0460-x
    DOI: 10.1007/s00191-016-0460-x
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    References listed on IDEAS

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    2. Witt, Ulrich, 2021. "Does sustainability-promoting policy making reduce our welfare?," Ecological Economics, Elsevier, vol. 188(C).

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    More about this item

    Keywords

    Slowdown in consumption; Engel curves; Propensity to consume; Role of prices;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • B50 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - General
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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