Habits, Rule-of-Thumb Consumption and Useful Public Consumption in Sub-Saharan Africa: Theory and New Evidence

John Nana Francois

Working Papers from African Economic Research Consortium

Abstract: I derive and estimate a structural consumption model for a panel of 34 sub-Saharan Africa countries from 1960a-2018 to uncover three important aggregate consumption behaviours habit formation, rule-of-thumb consumption and the complementarity of government consumption in private utility. The following findings emerge: (1) There is evidence of habit formation in consumption. (2) Approximately 38% of consumers follow the rule of thumb of consuming their current income. This rule of-thumb consumption behaviour in the data is driven by the period before the mobile money era that emerged post-2000s. (3) Public consumption complements private consumption in an Edgeworth-Pareto sense. This suggests that increases in government consumption can stimulate aggregate demand via a positive marginal utility channel.

Date: 2023
Note: African Economic Research Consortium
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