Income-Induced expenditure switching
Rudolfs Bems and
Julian di Giovanni
Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra
Abstract:
This paper shows that an income effect can drive expenditure switching between domestic and imported goods. We use a unique Latvian scanner-level dataset, covering the 2008-09 crisis, to document several empirical findings. First, expenditure switching accounted for one-third of the fall in imports, and took place within narrowly-defined product groups. Second, there was no corresponding within-group change in relative prices. Third, consumers substituted from expensive imports to cheaper domestic alternatives. These findings motivate us to estimate a model of non-homothetic consumer demand, which explains two-thirds of the observed expenditure switching. Estimated switching is driven by income, not changes in relative prices.
Keywords: Expenditure switching; relative price adjustment; crisis; income effect. (search for similar items in EconPapers)
JEL-codes: F1 F3 F4 (search for similar items in EconPapers)
Date: 2016-08
New Economics Papers: this item is included in nep-opm
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Citations: View citations in EconPapers (19)
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Related works:
Journal Article: Income-Induced Expenditure Switching (2016)
Working Paper: Income-Induced Expenditure Switching (2016)
Working Paper: Income-Induced Expenditure Switching (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:1534
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