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On the Distributional Effects of Income in an Aggregate Consumption Relation

Author

Listed:
  • Manisha Chakrabarty

    () (Keele University, Department of Economics)

  • Anke Schmalenbach

    () (Department of Economics, University of Bonn)

  • Jeffrey Racine

    () (Department of Economics, Syracuse University)

Abstract

In this paper we analyze the relevance of characteristics of the income distribution in an aggregate consumption relation. In particular, we use a statistical distributional approach toward aggregation in order to model the aggregate consumption relation of a heterogeneous population, and apply it to UK-Family Expenditure Survey data for the years 1974-1993. We consider a nonparametric estimation methodology, which accounts for the presence of continuous and discrete variables, and, for comparison purposes, a linear parametric method. A bootstrap test on the nonparametrically estimated parameters suggests that, in addition to the mean, the dispersion of income is also relevant. Additionally, the time-invariance of the parameters of the aggregate relation is rejected. These findings have important implications for constructing empirically sound models of aggregate consumption expenditure.

Suggested Citation

  • Manisha Chakrabarty & Anke Schmalenbach & Jeffrey Racine, 2004. "On the Distributional Effects of Income in an Aggregate Consumption Relation," Keele Economics Research Papers KERP 2004/09, Centre for Economic Research, Keele University.
  • Handle: RePEc:kee:kerpuk:2004/09
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    File URL: http://www.keele.ac.uk/depts/ec/wpapers/kerp0409.pdf
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    Cited by:

    1. Michal Paluch & Alois Kneip & Werner Hildenbrand, 2007. "Individual versus Aggregate Income Elasticities for Heterogeneous Populations," Bonn Econ Discussion Papers bgse13_2007, University of Bonn, Germany.
    2. Petr JakubĂ­k, 2011. "Household Balance Sheets and Economic Crisis," Working Papers IES 2011/20, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Jun 2011.
    3. Jakubik, Petr, 2011. "Households response to economic crisis," BOFIT Discussion Papers 7/2011, Bank of Finland, Institute for Economies in Transition.

    More about this item

    Keywords

    Aggregate Consumption; Heterogeneity; Dispersion; Local Linear Regression; Average Derivative;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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