How economic contractions and expansions affect expenditure patterns

Wagner A. Kamakura, Rex Yuxing Du

Research output: Contribution to journalArticleResearchpeer-review

73 Citations (Scopus)

Abstract

In this study, we attempt to understand how household budget allocations across various expenditure categories change when the economy is in recession or expansion. The common assumption is that a household's tastes would not change as a function of economic conditions and therefore any adjustments in expenditure patterns during economic contractions/expansions would simply be due to changes in the consumption budget. Standard economic models translate these budgetary effects into lateral movements along a set of fixed Engel curves, which relate category expenditure shares to total expenditures. We propose and test a conceptual framework based on the notion of relative consumption, which prescribes that, for any given total consumption budget, expenditure shares for positional goods/services will decrease during a recession, while shares for nonpositional goods/services will increase (i.e., shifting the entire Engel curve upward or downward, depending on the nature of the expenditure category and the economic conditions).

Original languageEnglish
Pages (from-to)229-247
Number of pages19
JournalJournal of Consumer Research
Volume39
Issue number2
DOIs
Publication statusPublished - Aug 2012
Externally publishedYes

Cite this