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How Economic Contractions and Expansions Affect Expenditure Patterns

Kamakura, Wagner A., How Economic Contractions and Expansions Affect Expenditure Patterns, Journal of Consumer Research, Vol. 39, No. 2 (August 2012), pp. 229-247

20 Pages Posted: 7 Feb 2014 Last revised: 11 Feb 2014

Wagner A. Kamakura

Rice University

Rex Yuxing Du

University of Houston - C.T. Bauer College of Business

Date Written: August 1, 2012

Abstract

In this study, we attempt to understand how household budget allocations across various expenditure categories change when the economy is in recession or expansion. The common assumption is that a household’s tastes would not change as a function of economic conditions and therefore any adjustments in expenditure patterns during economic contractions/expansions would simply be due to changes in the consumption budget. Standard economic models translate these budgetary effects into lateral movements along a set of fixed Engel curves, which relate category expenditure shares to total expenditures. We propose and test a conceptual framework based on the notion of relative consumption, which prescribes that, for any given total consumption budget, expenditure shares for positional goods/services will decrease during a recession, while shares for nonpositional goods/services will increase (i.e., shifting the entire Engel curve upward or downward, depending on the nature of the expenditure category and the economic conditions).

Suggested Citation

Kamakura, Wagner A. and Du, Rex Yuxing, How Economic Contractions and Expansions Affect Expenditure Patterns (August 1, 2012). Kamakura, Wagner A., How Economic Contractions and Expansions Affect Expenditure Patterns, Journal of Consumer Research, Vol. 39, No. 2 (August 2012), pp. 229-247. Available at SSRN: https://ssrn.com/abstract=2391286

Wagner A. Kamakura (Contact Author)

Rice University ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States
(713) 348-6307 (Phone)

Rex Yuxing Du

University of Houston - C.T. Bauer College of Business ( email )

Houston, TX 77204-6021
United States

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