When Does Food Stop Being a Luxury? Evidence from Quadratic Engel Curves with Measurement Error

Using quadratic Engel curves with measurement errors, we identify the proportion of urban households in Ethiopia for whom food exhibits the characteristics of a luxury commodity. The threshold welfare level beyond which food ceases to be a luxury is found to lie between the 35 and 47 percentiles of the total expenditure distribution. This suggests that policy aimed at reducing food poverty should target nearly half of urban households. In sharp contrast, estimates which erroneously neglect the problem of measurement error in expenditure data imply that no more than a quarter of the urban population suffers from food poverty. This demonstrates the potential for serious policy distortions resulting from a lack of careful statistical analysis. Outline