An Investigation of Equivalent Scales in Demand Using the 191 Latvian Household Budget Survey

The 1991 Latvia household budget survey provided data for establishing basic information about food consumption levels and patterns in Latvia during the first year of major economic reforms. This study evaluates one aspect of economic decision making of households: how income is allocated for consumption of various broad categories of food items. The analysis uses the 1991 data to examine the importance of income and household composition on food expenditures. Estimated income elasticities for various food commodities suggest the magnitude of changes in real household income that have occurred in Latvia. With relativity low income elasticities (estimated from the 1991 data), declines in household income would not be met by significant reductions in food expenditures, suggesting greater reduction in expenditures on other goods. In addition to current estimates obtained from the Latvian data, the economic approach and method of empirical analysis are provided in sufficient detail to be useful for other researchers replicating the methods and procedures on similar data sets.