ARE SERVICES INCOME‐ELASTIC? SOME NEW EVIDENCE

Rodney Falvey and Norman Gemmell

Review of Income and Wealth, 1996, vol. 42, issue 3, 257-269

Abstract: The hypothesis that the demand for services is income‐elastic tended to find support in early empirical work. Recent studies however, adopting improved methodologies and better international data (based on PPP exchange rates), have challenged this conventional wisdom. Using an updated, disaggregated dataset covering 60 countries in 1980 this paper re‐estimates income and price elasticities of demand for services. It rejects the income‐elastic argument overall but confirms a wide range of income elasticity estimates (above and below unity) across different types of services. Estimates are also shown to be sensitive to the a priori model of service demand.

Date: 1996
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https://doi.org/10.1111/j.1475-4991.1996.tb00182.x

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