Market demand and income distribution: a theoretical exploration

Peter Lambert, and Pfahler Pfahler
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Peter Lambert,: Institute for Fiscal Studies
Pfahler Pfahler: Institute for Fiscal Studies

No W93/17, IFS Working Papers from Institute for Fiscal Studies

Abstract: This paper sets out to explore theoretically how a change in the distribution of disposable income affects the market demand for a good or service. With the help of only minimal information on the shape of the Engel curve and the transition from one distribution to the other, a variety of empirically relevant constellations are identified in which the size (or mean income) effect on market demand is counteracted by the distributional effect. Since the determining factors are expressed by relations between summary statistics, our results at the same time provide theoretically sound restrictions on econometric approaches to market demand analysis.

Date: 1993-01-01
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