On the Biases in Interpreting Macro Elasticities as Micro Elasticities, and Vice Versa, in an Almost Ideal Demand System

Frank Denton and Dean Mountain ()

Quantitative Studies in Economics and Population Research Reports from McMaster University

Abstract: Elasticity values calculated at the macro level are biased as estimates of micro elasticities, and vice versa. We derive convenient expressions for aggregation/disaggregation biases in an Almost Ideal Demand System. Using after-tax data we calculate income distribution parameters for seven countries that span a wide range of distribution patterns. We then use the distribution parameters to evaluate the differences between macro and micro elasticities for alternative demand system parameter configurations.

Keywords: almost ideal demand system; elasticity; bias (search for similar items in EconPapers)
JEL-codes: D11 (search for similar items in EconPapers)
Pages: 20 pages
Date: 1997-06
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Persistent link: https://EconPapers.repec.org/RePEc:mcm:qseprr:331

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