Income Elasticities without Parameters

Abstract

This paper proposes a simple non-parametric framework to calculate income elasticities from a data set of observed prices and consumed quantities without having to estimate any parameters. The framework can be applied when the price-quantity data satisfies a revealed preference axiom called the strong version of the strong axiom of revealed preference (SSARP). The framework is used to calculate income elasticities for food and non-alcoholic drinks from a rich panel of household expenditures. For this category, it is found that households are rather homogeneous in their demand responses.

Keywords: Income elasticity, Non-parametric, Revealed preference, SSARP

JEL Classification: D11, D12