Estimation of Theorectically Plausible Demand Functions from U.S. Consumer Expenditure Survey Data

Estimation of Theoretically Plausible Demand Functions From U. S. Consumer Expenditure Survey Data Lester D. Taylor University of Arizona The purpose of this paper is the application of four popular theoretically plausible consumer demand systems to a common cross-sectional data set that combines expenditure data from the quarterly BLS consumer expenditure surveys with price data that are collected quarterly in cost-of-living surveys conducted by ACCRA. Six broad categories of expenditure that exhaust total expenditure are analyzed: food consumed at home, housing, utilities, transportation, health care, and miscellaneous. The four demand systems investigated are the Almost-Ideal-Demand-System, the Linear Expenditure System, and the Indirect and Direct Addilog models. Despite absolute differences in magnitudes that in some instances are rather large, there is substantial agreement in the rank-orderings of elasticities. In general, the largest elasticities (for both own-price and total expenditure) are for transportation, miscellaneous, and housing expenditures, while the smallest elasticities (again for both own-price and total expenditure) are for food and utility expenditures. Engel’s Law for food is confirmed in all instances. I am grateful to Sean McNamara of ACCRA for making EXCEL files of ACCRA surveys available to me and to the Cardon Chair Endowment in the Department of Agricultural and Resource Economics at the University of Arizona for financial support. Construction of data sets and econometric estimation have all been done in SAS. Estimation of Theoretically Plausible Demand Functions From U. S. Consumer Expenditure Survey Data Lester D. Taylor University of Arizona