Engel's Law and Linear‐in‐Moments Aggregation

Aggregation of individual Engel curves is considered such that aggregate food demand depends on the moments of the distribution of income across individuals. Given that aggregate demand is the sum of individual demands, consistent aggregation imposes a structure called the Linear‐in‐Moments form. This form is used to test whether the mean and second moment of income must be used to capture aggregate food demand. Empirical analysis strongly supports the proposition that both the mean and variance of income are required. Hence, our results show that aggregate food demand under consistent aggregation is inherently sensitive to changes in the distribution of income.