Unequal Expenditure Switching: Evidence from Switzerland

56 Pages Posted: 17 Feb 2022 Last revised: 23 Apr 2022

See all articles by Raphael Auer

Raphael Auer

Bank for International Settlements (BIS)

Ariel T. Burstein

University of California, Los Angeles (UCLA) - Department of Economics

Sarah Lein

University of Basel

Jonathan Vogel

UCLA; NBER

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Date Written: February 2022

Abstract

What are the unequal effects of changes in consumer prices on the cost of living? In the context of changes in import prices (driven by, e.g., changes in trade costs or exchange rates), most analyses focus on variation across households in initial expenditure shares on imported goods. However, the unequal welfare effects of non-marginal foreign price changes also depend on differences in how consumers substitute between imported and domestic goods, on which there is scant evidence. Using data from Switzerland surrounding the 2015 appreciation of the Swiss franc, we provide evidence that lower income households have higher price elasticities. These differences in elasticities contribute significantly to the unequal welfare effects of large import price changes.

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Suggested Citation

Auer, Raphael and Burstein, Ariel T. and Lein, Sarah and Vogel, Jonathan, Unequal Expenditure Switching: Evidence from Switzerland (February 2022). NBER Working Paper No. w29757, Available at SSRN: https://ssrn.com/abstract=4037014

Raphael Auer (Contact Author)

Bank for International Settlements (BIS) ( email )

Ariel T. Burstein

University of California, Los Angeles (UCLA) - Department of Economics ( email )

Box 951477
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Sarah Lein

University of Basel ( email )

Jonathan Vogel

UCLA ( email )

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Los Angeles, CA 90095-1477
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NBER ( email )

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