Preference Heterogeneity and the Rank of Demand Systems

Estimates of the Black Economy Based on Consumer Demand Approaches

“…This is not surprising, given that the quadratic logarithmic model is generally found to be an adequate specification for individual household data when tested against nonparametric alternatives (e.g. Banks et al, 1997;Lyssiotou et al, 1999a). This and the fact that preference heterogeneity cannot be rejected, suggest that the demand system approach yields more reliable estimates of the black economy than the single-equation (parametric and nonparametric) approach.…”

“…Here is considered to be endogenous, and hence E, (ℓ = w , s ). We follow the approach taken by Lyssiotou et al (1999 a ) that is briefly described below 7 . It is possible to express in terms of a set of instruments i h where, for simplicity, is assumed to be parametric, say .…”

Estimates of semiparametric equivalence scales

“…In effect our approach is similar in spirit to the extended partial linear semiparametric model of Blundell et al (1998), Lyssiotou et al (1999) and Yatchew et al (2002), where characteristics enter the linear part of partial linear specification. For a detailed description of the data presented in Table III, see Stengos et al (2003).…”

A rational rank four demand system

“…Parametric empirical tests of demand system rank include Hausman, Newey, and Powell (1995), Banks, Blundell, and Lewbel (1997), Lyssiotou, Pashardes, and Stengos (1999), and Nicol (2000). Ignoring the role of demographic characteristics, these parametric rank tests all use models of the log polynomial form This functional form is used because it nests popular models like the Translog, Almost Ideal, and Quadratic Almost Ideal (QUAIDS) demand systems, and because numerous Engel curve and demand system studies confirm that budget shares are well approximated by low‐order polynomials.…”