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Working Paper No. 1324

Income Elasticities Without Parameters

Working Paper
Hjertstrand, Per (2020). “Income Elasticities Without Parameters”. IFN Working Paper No. 1324. Stockholm: Research Institute of Industrial Economics (IFN).

Per Hjertstrand

This paper proposes a simple non-parametric framework to calculate income elasticities from a data set of observed prices and consumed quantities without having to estimate any parameters. The framework can be applied when the price-quantity data satisfies a revealed preference axiom called the strong version of the strong axiom of revealed preference (SSARP). The framework is used to calculate income elasticities for food and non-alcoholic drinks from a rich panel of household expenditures. For this category, it is found that households are rather homogeneous in their demand responses.