The Extended Non-Homothetic CES Preference

Junmin Liao, Xian Sun and Wei Wang
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Xian Sun: Wuhan University
Wei Wang: University of International Business and Economics

Review of Economic Dynamics, 2025, vol. 58

Abstract: The standard non-homothetic CES preference imposes parametric constraints on the relationship between price and income elasticities. This paper shows these parametric constraints are empirically implausible for certain sectors. We addresses this issue by introducing an extended parametric restriction that removes these constraints. We fully characterize the extended non-homothetic CES preference and show that it retains all the desirable properties of the standard non-homothetic CES preference. Importantly, the extended non-homothetic CES preference is not restricted for conducting empirical and quantitative exercises in macro-development models. It thus offers a flexible workhorse model for macro development and related fields. (Copyright: Elsevier)

Keywords: non-homotheticity; parametric restriction; income elasticity; identification and estimation; macro development (search for similar items in EconPapers)
JEL-codes: D11 E21 L16 O41 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1016/j.red.2025.101304

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