Income-Induced Expenditure Switching

Rudolfs Bems and Julian di Giovanni

No 922, Working Papers from Barcelona School of Economics

Abstract: This paper shows that an income effect can drive expenditure switching between domestic and imported goods. We use a unique Latvian scanner-level dataset, covering the 2008-09 crisis, to document several empirical findings. First, expenditure switching accounted for one-third of the fall in imports, and took place within narrowly-defined product groups. Second, there was no corresponding within-group change in relative prices. Third, consumers substituted from expensive imports to cheaper domestic alternatives. These findings motivate us to estimate a model of non-homothetic consumer demand, which explains two-thirds of the observed expenditure switching. Estimated switching is driven by income, not changes in relative prices.

Keywords: expenditure switching; relative price adjustment; crisis; income effect (search for similar items in EconPapers)
JEL-codes: F1 F3 F4 (search for similar items in EconPapers)
Date: 2016-09
New Economics Papers: this item is included in nep-opm and nep-sog
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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Related works:
Journal Article: Income-Induced Expenditure Switching (2016)
Working Paper: Income-Induced expenditure switching (2016)
Working Paper: Income-Induced Expenditure Switching (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:922

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