Income-expenditure elasticities of less-healthy consumption goods

Adam Hoffer (Department of Economics, University of Wisconsin – La Crosse, La Crosse, Wisconsin, USA)
Rejeana Gvillo (Department of Economics, University of Memphis, Memphis, Tennessee, USA)
William Shughart (Department of Economics and Finance, Utah State University, Logan, Utah, USA)
Michael Thomas (Department of Economics and Finance, Creighton University, Omaha, Nebraska, USA)

Journal of Entrepreneurship and Public Policy

ISSN: 2045-2101

Publication date: 10 April 2017

Abstract

Purpose

The purpose of this paper is to identify how consumption of 12 goods – alcohol, cigarettes, fast food, items sold at vending machines, purchases of food away from home, cookies, cakes, chips, candy, donuts, bacon, and carbonated soft drinks – varies across the income distribution by calculating their income-expenditure elasticites.

Design/methodology/approach

Data on 22,681 households from 2009-2012 from the Bureau of Labor Statistics’ Consumer Expenditure Survey were used. The data were analyzed using ordinary least squares regressions and Cragg’s double hurdle model which integrates a binary model to determine the decision to consume and a truncated normal model to estimate the effects for conditional (y>0) consumption.

Findings

Income had the greatest effect on expenditures for alcohol (0.314), food away from home (0.295), and fast food (0.284). A one percentage-point increase in income (approximately $428 at the mean) translated into a 0.314 percentage-point increase in spending on alcoholic beverages (approximately $1 annually at the mean). Income had the smallest influence on tobacco expenditures (0.007) and donut expenditures (−0.009).

Research limitations/implications

Percentage of a household’s discretionary budget spent on the studied goods falls substantially as income gets larger. Policies targeting the consumption of such goods will disproportionately impact lower income households.

Originality/value

This is the first manuscript to calculate income-expenditure elasticities for the goods studied. The results allow for a direct analysis of targeted consumption policy on household budgets across the income distribution.

Keywords

Citation

Hoffer, A., Gvillo, R., Shughart, W. and Thomas, M. (2017), "Income-expenditure elasticities of less-healthy consumption goods", Journal of Entrepreneurship and Public Policy, Vol. 6 No. 1, pp. 127-148. https://doi.org/10.1108/JEPP-03-2016-0008

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Publisher

:

Emerald Publishing Limited

Copyright © 2017, Emerald Publishing Limited

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