Analysis of a time series of household expenditure surveys for India

Econometric studies of household expenditure occupy an important place in government policy formulation with estimates of expenditure and price elasticity proving useful in several planning models. Although the empirical literature is large, relatively few studies have considered the simultaneous impact of total expenditure, price and family size on household demand using time series of budget data and within a framework that is consistent with economic theory. The principal objectives of the exercise include extension of the An Almost Ideal Demand System (AIDS) model by including family size and applying it to Indian budget data to estimate expenditure, price and size elasticities. The study tests the hypotheses of no price effects, no economies of household size, no money illusion. The study also compares the Indian expenditure pattern with those of other developing economies. The AIDS in its micro version and its adaptation for use on the published data is discussed. Five different versions of the AIDS were estimated on rural, urban and city data.