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ARE SERVICES INCOME‐ELASTIC? SOME NEW EVIDENCE
Author(s) -
Falvey Rodney E.,
Gemmell Norman
Publication year - 1996
Publication title -
review of income and wealth
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.024
H-Index - 57
eISSN - 1475-4991
pISSN - 0034-6586
DOI - 10.1111/j.1475-4991.1996.tb00182.x
Subject(s) - income elasticity of demand , economics , price elasticity of demand , a priori and a posteriori , econometrics , elasticity (physics) , work (physics) , empirical evidence , service (business) , microeconomics , economy , engineering , mechanical engineering , philosophy , materials science , epistemology , composite material
The hypothesis that the demand for services is income‐elastic tended to find support in early empirical work. Recent studies however, adopting improved methodologies and better international data (based on PPP exchange rates), have challenged this conventional wisdom. Using an updated, disaggregated dataset covering 60 countries in 1980 this paper re‐estimates income and price elasticities of demand for services. It rejects the income‐elastic argument overall but confirms a wide range of income elasticity estimates (above and below unity) across different types of services. Estimates are also shown to be sensitive to the a priori model of service demand.