Atsushi Maki and Mlemba Abassy Kamwe
Abstract: Contrary to Engel’s Law, we find that the Engel curve is upward sloping in the very poor households in Tanzania, indicating that the total expenditure elasticity for food in the very poor households is elastic. Food expenditure is classified as necessities because own-price elasticity for the food category as a whole is inelastic that is verified by the same cross-section data. Based on the above findings regarding the inverse U-shaped Engel curve, we consider the characteristics of necessities and luxuries utilizing not only total expenditure elasticity but own-price elasticity. This is important to target transfer payments to maintain the standard of living and support the most vulnerable population. Because of price increases in necessities, the standard of living decreases. When we have information regarding the price elasticity of demand, it is possible to fine tune subsidies and distribution of necessities to mitigate the negative impact of inflation and shortages.
Keywords: Engel’s Law, upward sloping Engel curve, Törnqvist-Wold hypothesis
About the HYI Working Paper Series: The Harvard-Yenching Institute is pleased to make available working papers by HYI affiliated scholars on topics in the humanities and social sciences, with special attention to the study of Asian culture.
The HYI Working Paper Series welcomes submissions from all HYI-affiliated faculty and fellowship grantees (including graduate students). Scholars are invited to post papers either in English or in an Asian language. To submit a paper, please email email@example.com.
The views expressed in the HYI Working Paper Series are those of the author(s) and do not necessarily reflect those of the Harvard-Yenching Institute. HYI Working Papers have not undergone formal review and approval. Such papers are included in this series to elicit feedback and to encourage discussion. Copyright belongs to the author(s). Papers may be downloaded for personal use only, and may not be cited without the author’s permission.