The implications of mean scaling for the calculation of aggregate consumer elasticities

Mean scaling is a common assumption in the estimation of aggregate consumer elasticities—in particular, expenditure elasticities, but also (implicitly) compensated price elasticities. The assumption is that each household’s income changes in the same proportion as aggregate income. If correct, that implies no bias in the use of aggregate data for estimation of expenditure elasticities. If incorrect, though, there may be substantial bias, especially if there is a high degree of inequality in the underlying income distribution, and regardless of whether one uses micro or aggregate data. We explore this issue, both theoretically and illustratively, using realistic (empirically derived) elasticity estimates coupled with relatively high and low degrees of income inequality.     

Safety cameras: stealth tax or life-savers?

There cannot be a road user in the UK who does not have an opinion on speed cameras—in most cases a rather strongly held opinion. Indeed many of us will hold them responsible for the first blemish on an otherwise clean license. Their proper name is not speed but safety cameras—but do they really save lives, or are they just one more way of extracting money from the hapless motorist? Linda Mountain knows the answers.     

Age,Trend, and Cohort Effects in a Macro Model of Canadian Expenditure Patterns

A quadratic almost ideal demand system allowing for age, cohort, and trend effects is developed at the macro level. The model is estimated by maximum likelihood, using a three-tier iterative/search method applied to pooled 1961–1992 time series for five regions of Canada and six categories of expenditure. Hypothesis tests indicate support for the model specification. Elasticities are compared with those reported in other studies, with special attention to food. Effects of demographic and trend variables on elasticities and expenditure shares are investigated. An overall conclusion is that such effects can be very important in a macro demand system.