Specification of household engel curves by nonparametric regression

This paper demonstrates the usefulness of nonparametric regression analysis for functional specfication of houshold Engel curves. After a brief review in section 2 of the literature on demand functions and equivalence scales and the functional specifications used, we first discuss in section 3 the issues of using income versus total expenditure, the origin and nature of the error terms in the light of utility theroy, and the interpretation of empirical demand functions. we shall reach the unorthodox view that household demand functions should be interpreted as conditional expectations relative to prices, household composition and either income or the conditional expectation of total expenditure (rather that total expenditure itself), where the latter conditional expectation is taken relative to income, prices and household composition. these two forms appear to be equivalent. this result also solves the simultaneity problem: the error variance matrix is no longer singular. Moreover, the errors are in gene...

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