Internal Structure of U.S. Consumption Expenditures

Abstract

Information in a household budget survey is usually analyzed in terms of expenditures for different goods and services and how these relate to income, prices, and socio-demographic factors such as age, family size, and education. Allocation of expenditures amongst different categories of consumption is seen as being determined by tastes and preferences acting in conjunction with a constraint imposed by prices and income. The parameters obtained are obviously useful in analyzing the impact on consumption resulting from changes in income and prices (should the latter be available), but income and price elasticities, in themselves, say little about the internal structure of consumption spending. How expenditures for housing and transportation, for example, are related to expenditures for food has, to the best of my knowledge, never a subject of direct empirical study. The investigation is based upon 40 quarterly surveys of consumer expenditures that were conducted by the U. S. Bureau of Labor Statistics from 1996Q1 through 2005Q4. The focus of the analysis is on two large data sets consisting of coefficients obtained from least-squares regression equations, in which each of 14 categories of expenditure is regressed on the expenditures for the other 13 categories and similarly for budget shares.