Income-expenditure elasticities of less-healthy consumption goods

Adam Hoffer, Rejeana Gvillo, William Shughart and Michael Thomas

Journal of Entrepreneurship and Public Policy, 2017, vol. 6, issue 1, 127-148

Abstract: Purpose - The purpose of this paper is to identify how consumption of 12 goods – alcohol, cigarettes, fast food, items sold at vending machines, purchases of food away from home, cookies, cakes, chips, candy, donuts, bacon, and carbonated soft drinks – varies across the income distribution by calculating their income-expenditure elasticites. Design/methodology/approach - Data on 22,681 households from 2009-2012 from the Bureau of Labor Statistics’ Consumer Expenditure Survey were used. The data were analyzed using ordinary least squares regressions and Cragg’s double hurdle model which integrates a binary model to determine the decision to consume and a truncated normal model to estimate the effects for conditional (y>0) consumption. Findings - Income had the greatest effect on expenditures for alcohol (0.314), food away from home (0.295), and fast food (0.284). A one percentage-point increase in income (approximately $428 at the mean) translated into a 0.314 percentage-point increase in spending on alcoholic beverages (approximately $1 annually at the mean). Income had the smallest influence on tobacco expenditures (0.007) and donut expenditures (−0.009). Research limitations/implications - Percentage of a household’s discretionary budget spent on the studied goods falls substantially as income gets larger. Policies targeting the consumption of such goods will disproportionately impact lower income households. Originality/value - This is the first manuscript to calculate income-expenditure elasticities for the goods studied. The results allow for a direct analysis of targeted consumption policy on household budgets across the income distribution.

Keywords: Consumption goods; Income expenditure elasticity; Obesity policy; Selective tax policy; Sin tax; D12; Q18; I18 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:jepppp:jepp-03-2016-0008

DOI: 10.1108/JEPP-03-2016-0008

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