The effect of current income on aggregate consumption
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Citation:Chakrabarty, Manisha; Schmalenbach,Anke. 'The effect of current income on aggregate consumption'. - Economic & Social Review, Vol. 33, No. 3, Winter, 2002, pp. 297-317, Dublin: Economic & Social Research Institute
Using the statistical distributional approach of aggregation by Hildenbrand and Kneip (1999, 2002), this paper attempts to find out to what extent current labour income can explain the relative change in aggregate consumption expenditure. The coefficients of the changes in the income distribution are estimated as an average derivative of the cross-section Engel curve. We use the UK-FES [1974-1993] to estimate these coefficients separately for each year by a nonparametric estimation procedure. It is found that the change in current labour income plays a significant role for the commodity groups services and total nondurable, thereby contradicting the implications of the traditional life-cycle/permanent income hypothesis. For services the inclusion of dispersion in addition to the mean of the income mdistribution improves the goodness-of-fit of the model.
Publisher:Economic & Social Research Institute
Description:Paper presented at the Sixteenth Annual Conference of the Irish Economic Association