An International Comparison of Long-Run Consumer Behaviour

Stewart C.
European Research Studies Journal, Volume IV, Issue 3-4, 19-36, 2001
EOI: 10.11214/thalassinos.04.02.003

Abstract:

Using the Johansen procedure I test for cointegration between consumption, private disposable income and inflation for 20 OECD countries over the period 1955–1994. There is evidence of cointegration for all countries. Plausible long–run consumption functions are obtained for 18 countries, and feature heterogeneous parameter estimates across countries. Evidence against a unit–income elasticity is obtained for 11 countries suggesting that one would be unwise to assume consumption is homogenous of degree one in income. Inflation is statistically significant and negative for only 7 countries indicating that it is not a fundamental explanatory factor of consumption for many countries. Cross–country regressions for the income elasticity reveal a negative association with income growth, the log–level of income and income inequality and a positive correlation with the fiscal surplus/deficit and the availability of credit. The cross–country regressions of the inflation elasticity are consistent with inflation acting as a proxy for asset effects.


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