Showing papers on "Consumption (economics) published in 2000"

Habit Formation in Consumption and Its Implications for Monetary Policy Models

Abstract: This paper explores a monetary policy model with habit formation for consumers, in which consumers’ utility depends in part on current consumption relative to past consumption The empirical tests developed in the paper show that one can reject the hypothesis of no habit formation with tremendous condence, largely because the habit formation model captures the gradual hump-shaped response of real spending to various shocks The paper then embeds the habit consumption specication in a monetary policy model and nds that the responses of both spending and inflation to monetary policy actions are signicantly improved by this modication (JEL D12, E52, E43)

Do the Rich Save More

Abstract: The issue of whether higher lifetime income households save a larger fraction of their income is an important factor in the evaluation of tax and macroeconomic policy Despite an outpouring of research on this topic in the 1950s and 1960s, the question remains unresolved and has since received little attention This paper revisits the issue, using new empirical methods and the Panel Study on Income Dynamics, the Survey of Consumer Finances, and the Consumer Expenditure Survey We first consider the various ways in which life cycle models can be altered to generate differences in saving rates by income groups: differences in Social Security benefits, different time preference rates, non-homothetic preferences, bequest motives, uncertainty, and consumption floors Using a variety of instruments for lifetime income, we find a strong positive relationship between personal saving rates and lifetime income The data do not support theories relying on time preference rates, non-homothetic preferences, or variations in Social Security benefits Instead, the evidence is consistent with models in which precautionary saving and bequest motives drive variations in saving rates across income groups Finally, we illustrate how models that assume a constant rate of saving across income groups can yield erroneous predictions

Vulnerability, seasonality and poverty in Ethiopia

Abstract: Most studies examining the dynamics of welfare have found large fluctuations in consumption over relatively short periods, suggesting substantial short‐run movements in and out of poverty. The consequence is that cross‐section poverty research may not be able to identify the poor. In this study, we explore this short‐run variability further. We use a data set on a panel of 1450 households in different communities in rural Ethiopia, surveyed thrice, over 18 months. On average year‐to‐year poverty is very similar. However, we find high variability in consumption and poverty, over the seasons and year‐by‐year. Econometric analysis suggests that consumption is affected by idiosyncratic and common shocks, including rainfall and household‐specific crop failure, while households respond to seasonal incentives related to changing labour demand and prices. The results imply that a larger number of households are vulnerable to shocks than implied by the standard poverty statistics, while some of the non‐poor in the...

Informal Insurance Arrangements with Limited Commitment: Theory and Evidence from Village Economies

Abstract: Recent work on consumption allocations in village economies finds that idiosyncratic variation in consumption is systematically related to idiosyncratic variation in income, thus rejecting the hypothesis of full risk-pooling. We attempt to explain these observations by adding limited commitment as an impediment to risk-pooling. We provide a general dynamic model and completely characterise efficient informal insurance arrangements constrained by limited commitment, and test the model using data from from three Indian villages. We find that the model can fully explain the dynamic response of consumption to income, but that it fails to explain the distribution of consumption across households.

Consumption and Risk Sharing Over the Life Cycle

Abstract: A striking feature of U.S. data on income and consumption is that inequality increases with age. Using both panel data and an equilibrium life cycle model, we argue that this is informative for understanding the importance and the characteristics of idiosyncratic labor market risk. We find that uncertainty distributed throughout the working years accounts for 40 percent of life time uncertainty, with the remainder being realized prior to entering the labor market. We estimate that the shocks received over the life cycle contain a highly persistent component, with an autocorrelation coefficient between 0.98 and unity. The joint behavior of earnings and consumption inequality, interpreted using our model, adds to the body of evidence suggesting that labor market risks are imperfectly pooled and that a precautionary motive is an important aspect of U.S. savings behavior. The restrictions imposed by general equilibrium theory play an important role in arriving at each of these conclusions.

Tax Avoidance, Evasion, and Administration

Abstract: When tax structure changes, people may alter their consumption basket, but they also may call and give new instructions to their accountant, change their reports to the IRS, change the timing of transactions, and undertake a range of other actions that do not directly involve a change in their consumption basket. This survey argues that acknowledging the variety of behavioral responses to taxation changes the answers to traditional subjects of inquiry such an incidence, optimal progressivity, and optimal tax structure, and also raises a whole new set of policy questions, such as the appropriate level of resources to devote to administration and enforcement, and how these resources should be deployed. For some purposes, such as estimating the marginal cost of funds, and subject to some qualifications, the nature of the behavioral response does not matter, and only the total magnitude of response does. However, with respect to real behavioral responses such as labor supply, it is natural to presume that the response is an immutable function of preferences. With respect to avoidance and evasion, though, this is not appropriate because there are a variety of policy instruments that can affect the magnitude of responses, implying that the elasticity of response is itself a policy instrument.

In Sickness and in Health: Risk Sharing within Households in Rural Ethiopia

Abstract: Much of the literature on consumption smoothing and on risk sharing has focused on the ability of the household as a unit to protect its consumption. Little is known about the ability of individual...

Habit Formation in Consumer Preferences: Evidence from Panel Data

Abstract: This paper tests for the presence of habit formation using household data. A simple model of habit formation implies a condition relating the strength of habits to the evolution of consumption over time. When the condition is estimated with food consumption data from the Panel Study on Income Dynamics, the results yield no evidence of habit formation at the annual frequency. This finding is robust to a number of changes in the specification. It also holds for several proxies for nondurables and services consumption created by combining PSID variables with weights estimated from Consumer Expenditure Survey data.

Eating Out: Social Differentiation, Consumption and Pleasure

Abstract: Acknowledgements List of figures List of tables List of boxes 1. The study and its rationale Part I. Modes of Provision: 2. The development of the habit of eating out in the UK 3. The meanings of eating out Part II. Access: 4. Patterns of eating out 5. Domestic organisation, family meals and eating out Part III. Delivery: 6. Personal service in public and private places 7. Last suppers Part IV. Enjoyment: The Attractions of Eating Out: 8. Eating out and its gratifications 9. The enjoyment of meal events Part V. Conclusion: 10. Eating out and the theories of consumption Methodological appendix: data collection and analysis References.

Is transient poverty different? Evidence for rural China

Abstract: We define ‘transient poverty’ as the component of time‐mean consumption poverty at household level that is directly attributable to variability in consumption; this can be thought of as a measure of vulnerability to falling consumption. The non‐transient component then depends solely on mean consumption over time, and we call this ‘chronic poverty’. Using robust semi‐parametric methods and household panel data for rural China, we test whether transient poverty is determined by a process that is similar to chronic poverty. Commonly identified causes of poverty in this setting have weak explanatory power for transient poverty and some of the factors determining transient poverty do not matter to chronic poverty, or even have the opposite effect. Successful policy responses to chronic poverty may still leave considerable transient poverty.

Lifestyles, consumption and the environment: The ecological modernization of domestic consumption

Abstract: Ecological modernisation theory has been developed so far mainly with respect to the production sphere. In order to apply the theory to the sphere of consumption, it needs to be enriched with some of the central concepts from the sociology of consumption. What results is a contextual model of (domestic) consumption which combines an actor‐oriented approach with a system‐of‐provision perspective of consumer behaviour. In conclusion, the relevance of the proposed model for research on the ecological modernisation of domestic consumption is discussed.

Structural change and economic growth

Abstract: This paper presents a model in which a country's measured average propensity to save endogenously rises when its economy industrializes. The model has agricultural and manufacturing sectors. Only agriculture uses land. If at early dates income per capita is low, agricultural consumption is important, land is valuable, and capital gains on land may constitute most wealth accumulation, leaving the country's NIPA APS low. If exogenous technological progress raises incomes over time, Engel's law shifts demand to manufactured goods. Then land's portfolio importance relative to reproducible capital diminishes and the national income and products account saving rate can rise. This paper presents a model illustrating that structural change due to the operation of Engel's law can systematically affect an economy's measured saving rate. According to the model, a country's national income and product account average propensity to save will rise naturally if and when technological progress sufficiently lifts its income per capita. This suggests a new interpretation of time series evidence: while saving rates historically tend to be higher after industrialization than before, one cannot automatically infer that changing wealth-accumulation behaviour led to modernization-rather, structural change accompanying growth may have caused the rise in saving rates. This paper also warns that international trade could lead to a contrasting pattern in cross sectional data: highincome nations might contemporaneously have lower measured saving rates than poor countries. Recent work by Mankiw, Romer and Weil (1992), Islam (1995), Mankiw (1995), and others investigates long-run patterns. The analyses assume that each economy has attained, or is moving toward, a steady state equilibrium. As in Solow (1956), a country's steady-state level of per capita GDP depends on its average propensity to save (APS), its rate of population growth, the efficiency of its production sector, etc. Regression outcomes seem consistent with the Solow model's prediction that a higher APS will, ceteris paribus, lead to a higher level of income per capita. The idea is that heterogeneity of exogenous preferences leads to international differences in APS's and, in turn, to long-run differences

Eating Out: Social Differentiation, Consumption and Pleasure

Abstract: Eating Out, first published in 2000, is a fascinating study of the consumption of food outside the home, based on extensive original research carried out in England in the 1990s. Reflecting the explosion of interest in food, ranging from food scares to the national obsession with celebrity chefs, the practice of eating out has increased dramatically over recent years. Through surveys and intensive interviews, the authors have collected a wealth of information into people's attitudes towards, and expectations of, eating out as a form of entertainment and an expression of taste and status. Amongst other topics they examine social inequalities in access to eating out, social distinction, interactions between customers and staff, and the economic and social implications of the practice. Eating Out will be a valuable resource to academics, advanced students and practitioners in the sociology of consumption, cultural studies, social anthropology, tourism and hospitality, home economics, marketing, and the general reader.

Wealth and Stratification Processes

Abstract: This paper reviews current information on wealth trends, with particular attention to the role of household wealth in the stratification system. The first section considers the relevance of wealth for stratification processes and examines why an appreciation of household wealth has been slow to materialize in stratification research. Subsequent sections discuss aspects of the distribution of household wealth in the United States, the transmission of inequality across generations, and implications of a consideration of wealth for stratification theory and social policy. The concluding section conveys some observations about the need for developing models of consumption potential and living standards, akin to the socioeconomic attainment formulation, which incorporate measures of household wealth and the transmission of wealth.

Measuring Poverty using Qualitative Perceptions of Consumption Adequacy

Abstract: We show that subjective poverty lines can be derived using simple qualitative assessments of perceived consumption adequacy based on a household survey. We implement the method using survey data for Jamaica and Nepal. Respondents were asked whether their consumptions of food, housing, and clothing were adequate for their family's needs. The implied poverty lines are robust to alternative methods of dealing with other components of expenditure. The aggregate poverty rates accord quite closely with those based on independent “objective” poverty lines. However, there are notable differences in the geographic and demographic poverty profiles.

Consumers’ perceptions of the country‐of‐origin effect on purchasing intentions of (in)conspicuous products

Abstract: The country‐of‐origin effect and product consumption conspicuousness are examined. This study strengthens our understanding of the importance of the COO effect as it is investigated with respect to consumers’ purchasing intentions of public vs. private and luxury vs. necessity products. For instance, does the COO effect differ in its importance in the purchasing decision of conspicuous vs. inconspicuous products? A product’s country of origin has a stronger effect when considering luxury products. The conspicuous aspect of the consumption comes second.

Explaining the Poor Performance of Consumption-Based Asset Pricing Models

Abstract: We show that the external habit-formation model economy of Campbell and Cochrane (1999) can explain why the Capital Asset Pricing Model (CAPM) and its extensions are betterapproximate asset pricing models than is the standard onsumption-based model. The model economy produces time-varying expected eturns, tracked by the dividend–price ratio. Portfolio-based models capture some of this variation in state variables, which a state-independent function of consumption cannot capture. Therefore, though the consumption-based model and CAPM are both perfect conditional asset pricing models, the portfolio-based models are better approximate unconditional asset pricing models.

The economics of global tobacco control

Abstract: Few people now dispute that smoking is damaging human health on a global scale.1 However, many governments have avoided taking action to control smoking—such as higher taxes—because of concerns that their interventions might have harmful economic consequences, such as permanent job losses. In 1997 the World Bank, in partnership with the World Health Organization, began a global study on the economics of tobacco control. A team of over 40 economists, epidemiologists, and tobacco control experts critically examined the current state of knowledge about tobacco control. The aim was to provide a sound and comprehensive evidence base for the design of effective tobacco control policies in any country, with an emphasis on the needs of the low income and middle income countries, where most smokers live. A synopsis of this work, including interim results, was published in 1999.2 Final results, including 19 chapters and a statistical appendix, are now available.3 This article presents the key findings from this study. #### Summary points Tax increases are the single most effective intervention to reduce demand for tobacco (tax increases that raise the real price of cigarettes by 10% would reduce smoking by about 4% in high income countries and by about 8% in low income or middle income countries) Tax comprises about two thirds of retail price of cigarettes in most high income countries but is less than half of the total price on average in lower income countries Improvements in the quality and extent of information, comprehensive bans on tobacco advertising and promotion, prominent warning labels, restrictions on smoking in public places, and increased access to nicotine replacement treatments are effective in reducing smoking Reducing the supply of tobacco is not effective in reducing tobacco consumption Comprehensive tobacco control policies are unlikely to harm economies Each chapter of the study relied on …

Advance Pricing of Services and Other Implications of Separating Purchase and Consumption

Abstract: It is important to differentiate between the act of purchasing and the act of consuming Understanding this separation provides many implications and areas for future research For example, the separation creates buyer uncertainty about the utility from consumption Consider buying a ticket for a concert in advance Here, buyers may be uncertain about their future state (eg, health, expected conflicts, mood) at the time of the concert This article explores the desirability and implications of this separation and the creation of it (which is often a consequence of the service provider’s selling strategy) The authors show that service providers can improve profits by advance ticketing, perhaps, to the level of first-degree price discrimination (although usually there is no loss in aggregate consumer surplus) These profits are possible despite a service provider’s inability to price discriminate

Chapter 29 The economics of smoking

Abstract: While the tobacco industry ranks among the most substantial and successful of economic enterprises, tobacco consumption is associated with more deaths than any other product Economic analysis of the markets for tobacco products, particularly cigarettes, has contributed considerable insight to debates about the importance of the industry and the appropriate roles of public policy in grappling with the health consequences of tobacco Certainly the most significant example of this phenomenon has been the rapidly expanding and increasingly sophisticated body of research on the effects of price increases on cigarette consumption Because excise tax comprises an important component of price, the resultant literature has played a prominent role in legislative debates about using taxation as a principal tool to discourage smoking In addition to informing legislative debates, this literature has contributed both theory and empirical evidence to the growing interest in modeling the demand for addictive products This chapter examines this body of research in detail, as well as a variety of equity and efficiency concerns accompanying debates about cigarette taxation Coverage also includes economic analysis of the role of other tobacco control policies, such as restrictions on advertising, of special interest due to their prominence in debates about tobacco control The chapter concludes with consideration of research addressing the validity of the tobacco industry's argument that its contributions to employment, tax revenues, and trade balances are vital to the economic health of states and nations This argument is one of the industry's principal weapons in its battle against policy measures intended to reduce tobacco product consumption

The characterization of goods and services: an alternative approach

Abstract: The definitions of goods and services have been debated among economists for more than two centuries. This article seeks to consider the definitions currently used from a critical perspective and to offer a new general definition of services that is compatible with the existence of several demand rationales.

Applications of evolutionary psychology in marketing

Abstract: Evolutionary psychology is an emerging paradigm in psychological science. The current article introduces this framework to marketing scholars and presents evidence for its increasing acceptance within the social science community. As a result, a case is made for the application of evolutionary psychology to marketing, and especially consumer behavior. Application of the evolutionary framework in studying gender-related consumption behavior is illustrated by comparing the evolutionary predictions with results obtained from previous studies, by supporting these predictions with market-level consumption data, and by proposing new hypotheses based on this framework. Also discussed are the potential applications of evolutionary psychology to other consumption-related phenomena like evaluation of endorser attractiveness in advertising, biologically driven consumption choices among women, consumer-experienced emotions in service encounters, and consumption choices as inclusive fitness maximization rather than utility maximization. 2000 John Wiley & Sons, Inc.

Average Effective Tax Rates on Capital, Labour and Consumption

Abstract: Over the past 15 years, tax reforms have profoundly changed the shape of OECD tax systems and rekindled interest in measuring effective tax burdens. Indeed, in order to understand past reforms or to evaluate the tax policies of particular countries, it is necessary to go beyond statutory rates since these sometimes bear little relation to rates actually paid. This paper updates and extends the Mendoza et al. estimates of average effective tax rates (AETRs) and presents new estimates based on modifications to the methodology to make some of the underlying assumptions more realistic. In particular, the assumption that all income from self-employment is capital income is dropped in favour of assuming that the self-employed earn both labour and capital income. This change raises estimates of the AETR on capital and reduces the estimated AETR on labour but does not alter the trends observed in the updated Mendoza et al. estimates. Both sets of estimates show that, on average, the ...