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The rank of a system of Engel curves: how many common factors?

Barigozzi, Matteo and Moneta, Alessio (2011) The rank of a system of Engel curves: how many common factors? Papers on economics and evolution, 1101. Max Planck Institute of Economics, Jena, Germany.

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Identification Number: 1101

Abstract

By representing a system of budget shares as an approximate factor model we determine its rank, i.e. the number of common functional forms, or factors, spanning the space of Engel curves. Once the common factors are estimated via approximate principal components, we identify them by imposing statistical independence. Finally, by means of parametric and non-parametric regressions we estimate the factors as functions of total expenditure. Using data from the U.K. Consumption Expenditure Survey from 1968 to 2006, we find evidence of three common functional forms which correspond to decreasing, increasing and almost constant Engel curves. The household consumption behavior is therefore driven by three factors respectively related to necessities (e.g. food), luxuries (e.g. vehicles), and goods to which is allocated the same percentage of total budget both in rich and in poor households (e.g. housing).

Item Type: Monograph (Discussion Paper)
Official URL: https://papers.econ.mpg.de/evo/discussionpapers/20...
Additional Information: © 2011 The Authors
Subjects: H Social Sciences > HB Economic Theory
JEL classification: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C52 - Model Evaluation and Selection
D - Microeconomics > D1 - Household Behavior and Family Economics > D12 - Consumer Economics: Empirical Analysis
Sets: Departments > Statistics
Date Deposited: 26 Apr 2012 08:54
Last Modified: 26 Apr 2012 08:54
URI: http://eprints.lse.ac.uk/id/eprint/43345

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