Empirical analysis of Australian consumption patterns

Abstract

This paper presents an empirical analysis of Australian private consumption patterns utilising a system-wide approach to analyse how the dominant component, private consumption, is allocated among ten broad groups of consumer goods. Australian consumers, on average, allocate about two-thirds of their income on food, housing, transport and recreation. We considered three demand models, the AIDS, Rotterdam and CBS demand systems, for estimation. The estimated income elasticities reveal that food, alcohol and tobacco, housing and medical care are necessities. All the own-price elasticities are negative and less than one in absolute value (except for recreation), indicating that demand for most goods is price inelastic. In addition, we tested the demand theory hypotheses, homogeneity, Slutsky symmetry and preference independence and found them to be acceptable.