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Structural Change and the Kaldor Facts in a Growth Model With Relative Price Effects and Non‐Gorman Preferences
Author(s) -
Boppart Timo
Publication year - 2014
Publication title -
econometrica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 16.7
H-Index - 199
eISSN - 1468-0262
pISSN - 0012-9682
DOI - 10.3982/ecta11354
Subject(s) - economics , relative price , econometrics , constant (computer programming) , price setting , substitution (logic) , aggregate (composite) , decomposition , growth model , microeconomics , ecology , materials science , computer science , composite material , biology , programming language
U.S. data reveal three facts: (1) the share of goods in total expenditure declines at a constant rate over time, (2) the price of goods relative to services declines at a constant rate over time, and (3) poor households spend a larger fraction of their budget on goods than do rich households. I provide a macroeconomic model with non‐Gorman preferences that rationalizes these facts, along with the aggregate Kaldor facts. The model is parsimonious and admits an analytical solution. Its functional form allows a decomposition of U.S. structural change into an income and substitution effect. Estimates from micro data show each of these effects to be of roughly equal importance.