National and International Income Dispersion and Aggregate Expenditures
Tinbergen Institute Discussion Paper No. TI 04-093/2
26 Pages Posted: 26 Aug 2004
Date Written: August 2004
We examine linkages between aggregate household income, distribution of that income, and aggregate cross-country expenditure patterns. We are able to decompose income effects into international income dispersion effects (from variations in average income) and national income dispersion (income distribution) effects. This yields insights for relevant aggregate household specifications in computational policy models emphasizing household distribution of income. This also yields a consumption-pattern based inequality index that summarizes the projection of inequality through expenditure patterns. Estimation of flexible demand systems with representative expenditures (which reflects income distribution within countries) yields a significant relationship between representative consumption and cross-country demand patterns.
Keywords: Income distribution, aggregate demand, demand system estimation, Engel curves
JEL Classification: D31, D12, D63, C68
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