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Demographic vs Expenditure Flexibility in Engel Curves

Listed author(s):
  • Panayiota Lyssiotou

    ()

    (University of Cyprus, Cyprus)

  • Panos Pashardes

    ()

    (University of Cyprus, Cyprus)

  • Thanasis Stengos

    ()

    (University of Guelph, Canada and The Rimini Centre for Economics Analysis, Rimini, Italy)

We consider the effects of demographic and expenditure variables on consumer demand in a system of Engel curves using a smooth coefficient semiparametric model where the expenditure effects on the budget shares vary nonparametrically with demographic variables such as the age of head and number of children in the household. Our findings, based on UK micro data, suggest that with a smooth coefficient semiparametric model there is no need for nonlinear logarithmic expenditure effects in the budget shares. Furthermore, we find evidence of a trade-off between demographic and expenditure effects in Engel curves and that a rank-2 system of Engel curves where the logarithmic expenditure effects are allowed to vary with demographic characteristics either nonparametrically or as a third degree polynomial function cannot be rejected against a rank-3 (quadratic logarithmic) model. The implications on household behaviour and welfare are also examined.

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File URL: http://www.rcea.org/RePEc/pdf/wp22_07.pdf
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Paper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 22_07.

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Date of creation: Jul 2007
Handle: RePEc:rim:rimwps:22_07
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  1. Richard Blundell & Alan Duncan & Krishna Pendakur, 1998. "Semiparametric estimation and consumer demand," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 13(5), pages 435-461.
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