The relevance of Duesenberry consumption theory: an applied case to Latin America

Abstract

In this paper we examine the to-date relevance of Duesenberry´s Consumption Theory through an applied case to four economies in Latin America: Mexico, Brazil, Argentina and Colombia. Using annual time series of these countries we show that some empirical evidence of Duesenberry´s theory still holds and should not be discarded in modern macroeconomics as it has happened in regular macro text books in mainstream economics. Duesenberry´s theory includes important institutional factors that cannot be replaced by the permanent income hypothesis or the life cycle hypotheses. In the paper we explore different specifications of the consumption functions based on the relevant literature. Final conclusions are presented.