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- Title
Intertemporal propensity to consume.
- Authors
Bruns, Stephan; Moneta, Alessio
- Abstract
Cross-sectionally estimated Engel curves tend to exhibit shapes that imply ultimately decreasing marginal propensities to consume as income rises. This suggests at first sight a tendency to slow down in private consumption. This tendency has to be reconsidered taking into account the fact that Engel curves usually shift significantly over time. We introduce the notion of 'intertemporal propensity to consume' to shed more light on the drivers and patterns of the evolution of Engel curves. Using this notion, we are able to identify and measure the direction of the expansion path of consumption as time goes by, while controlling for household characteristics and price levels. Using German household data, we show that, over time, the intertemporal propensity to consume systematically offsets the consumption paths implied by the marginal propensity to consume that is derived cross-sectionally at one point in time. We claim that this difference between marginal and intertemporal propensity to consume should be ascribed to variations in the socioeconomic structures that occur over time and that may be linked both to the supply side (innovation and technical change) and the demand side (learning dynamics of consumers). We also show that changes in relative prices play a minor role in the evolution of Engel curves.
- Subjects
INTERTEMPORAL choice; PROPENSITY to consume; ENGEL curve; CONSUMPTION (Economics); REGRESSION analysis
- Publication
Journal of Evolutionary Economics, 2017, Vol 27, Issue 2, p295
- ISSN
0936-9937
- Publication type
Article
- DOI
10.1007/s00191-016-0460-x