Estimation of Demand Parameters under Consumer Budgeting: An Application to Argentina

This study assumes that consumer expenditures occur in a stepwise fashion in which income is fist allocated to budget categories and then to optimum quantities within each category. With this assumption, a model was developed to estimate the price and icome elasticities of demand of all items in one budget category—like food—and the cross‐price elasticities of these items with all others. The approach permits one to specify the changes in expenditure levels on budget categories from cross‐section information and the flexibility of money. The model was empirically applied to Argentine consumption data.