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Identification and Estimation of Engel Curves with Endogenous and Unobserved Expenditures

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  • Erich Battistin
  • Michele De Nadai

Abstract

When dealing with the estimation of Engel curves, measurement errors in expenditure data and simultaneity are likely sources of endogeneity. In this paper we study identification of the parameters that characterize an Engel curve in the presence of both. We consider specifications where budget shares are polynomials in the logarithm of total expenditure, which is the case frequently encountered in empirical applications. We propose an estimation procedure which is an extension of that in Lewbel ( ) and exploits a control function assumption to correct for the endogeneity of the true unobserved total expenditure. Copyright © 2013 John Wiley & Sons, Ltd.

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  • Erich Battistin & Michele De Nadai, 2015. "Identification and Estimation of Engel Curves with Endogenous and Unobserved Expenditures," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 30(3), pages 487-508, April.
    • Handle: RePEc:wly:japmet:v:30:y:2015:i:3:p:487-508
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    1. Kohtaro Hitomi & Masamune Iwasawa & Yoshihiko Nishiyama, 2022. "Optimal minimax rates against nonsmooth alternatives [Optimal testing for additivity in multiple nonparametric regression]," The Econometrics Journal, Royal Economic Society, vol. 25(2), pages 322-339.
    2. Kohtaro Hitomi & Masamune Iwasawa & Yoshihiko Nishiyama, 2018. "Rate Optimal Specification Test When the Number of Instruments is Large," KIER Working Papers 986, Kyoto University, Institute of Economic Research.

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