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Heterogeneity in consumer demands and the income effect: evidence from panel data

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  • Mette Christensen

    () (Institute for Fiscal Studies and Copenhagen Business School)

Abstract

All micro studies of demand are based on using time series cross sectional data. Because in such data each household is only observed once, it is only under strong identifying restrictions that one can interpret the coefficients on consumer behavior. For example, if tastes are correlated with income, the usual estimates of income elasticities from cross sectional data are biased. In contrast, panel data allows identification of the coefficients on consumer behavior in the presence of unobservable correlated heterogeneity. In this paper we make use of a unique Spanish panel data set on household expenditures to test whether unobservable heterogeneity in household demands (taste) is correlated with total expenditures (income). We find that tastes are indeed correlated with income for half of the goods considered.

Suggested Citation

  • Mette Christensen, 2007. "Heterogeneity in consumer demands and the income effect: evidence from panel data," IFS Working Papers W07/16, Institute for Fiscal Studies.
  • Handle: RePEc:ifs:ifsewp:07/16
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    1. repec:spr:etbull:v:3:y:2015:i:2:d:10.1007_s40505-014-0061-5 is not listed on IDEAS
    2. Pablo del Río & Desiderio Romero & Marta Jorge & Mercedes Burguillo, 2012. "Territorial differences for transport fuel demand in Spain: an econometric study," Chapters,in: Green Taxation and Environmental Sustainability, chapter 4, pages 56-68 Edward Elgar Publishing.

    More about this item

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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