Working Paper: CEPR ID: DP13469
Authors: Simon Alder; Timo Boppart; Andreas Müller
Abstract: We study structural change in historical consumption expenditure of the United States, the United Kingdom, Canada and Australia over more than a century. To identify preference parameters from aggregate data, we characterize the most general class of preferences in a time-additive setting that admits aggregation of the intertemporal saving decision. We parametrize and estimate such intertemporally aggregable (IA) preferences and discuss their properties in a dynamic general equilibrium framework with sustained growth. Our preferences class is considerably more flexible than the Gorman form or PIGL/PIGLOG, giving rise to a good fit of the non-monotonic pattern of structural change.
Keywords: Structural Change; Multisector Growth Model; Nonhomothetic Preferences; Relative Price Effects; Nonmonotonic Engel Curves; Aggregation
JEL Codes: O11; O14; L16; E21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| structural change in consumption expenditure (D12) | preference parameters (D11) |
| countries develop (O57) | consumption expenditure declines in agricultural sector (E20) |
| countries develop (O57) | value-added share of agricultural sector declines (Q11) |
| countries develop (O57) | manufacturing sector share first increases then decreases (O14) |
| manufacturing sector share (L60) | services sector becomes dominant (O14) |
| IA preferences (F53) | better alignment with historical data than traditional models (C51) |
| IA preferences (F53) | sustained income effects (H31) |
| relative price effects + income effects (F16) | structural transformations (P39) |