On the Distributional Effects of Income in an Aggregate Consumption Relation

Manisha Chakrabarty (), Anke Schmalenbach and Jeffrey Scott Racine ()

No KERP 2004/09, Keele Economics Research Papers from Centre for Economic Research, Keele University

Abstract: In this paper we analyze the relevance of characteristics of the income distribution in an aggregate consumption relation. In particular, we use a statistical distributional approach toward aggregation in order to model the aggregate consumption relation of a heterogeneous population, and apply it to UK-Family Expenditure Survey data for the years 1974-1993. We consider a nonparametric estimation methodology, which accounts for the presence of continuous and discrete variables, and, for comparison purposes, a linear parametric method. A bootstrap test on the nonparametrically estimated parameters suggests that, in addition to the mean, the dispersion of income is also relevant. Additionally, the time-invariance of the parameters of the aggregate relation is rejected. These findings have important implications for constructing empirically sound models of aggregate consumption expenditure.

Keywords: Aggregate Consumption; Heterogeneity; Dispersion; Local Linear Regression; Average Derivative (search for similar items in EconPapers)
JEL-codes: C12 C14 D12 E21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2004-11
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Forthcoming in Canadian Journal of Economics

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Journal Article: On the distributional effects of income in an aggregate consumption relation (2006)
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