The Deaton–Paxson paradox in the consumption of Russian households

Ekaterina Berendeeva () and Tatiana Ratnikova
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Ekaterina Berendeeva: National Research University Higher School of Economics, Moscow, Russian Federation

Applied Econometrics, 2016, vol. 42, 54-74

Abstract: The existence of economies of scale or the Deaton–Paxson paradox significantly complicates the estimations of household consumption significantly. This paper investigates whether this paradox is present for some core elements of the consumption of Russian households based on RLMS data. The results confirmed the existence of the paradox, but showed that during an economic crisis it has the least effect. In addition, it was found that indicators of the economy of scale differ for households with various income and composition and for different types of goods. Findings of the study indicate that for more accurate estimations in calculating the economic indicators that take into account household expenditures, such as level and depth of poverty using alternative approaches, adjustment for economies of scale is necessary. The study also provides an analysis of the same type with the power switch on the effect of the other when changing the size of the household in trying to understand the source of the paradox. The results show that switching phenomenon does exist, but acting in different directions with the addition to the family of the child and adult. The study also offers an examination of the “switching effect” in order to understand the real source of the paradox. The results show that “switching phenomenon” does exist, but works in different directions with the addition of the child or the adult to the family.

Keywords: economies of scale; Engel curves; household consumption (search for similar items in EconPapers)
JEL-codes: C14 C23 D10 (search for similar items in EconPapers)
Date: 2016
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