The consumption of Colombian households, 2006-2007: Estimation of demand systems

Using household data from the 2006-2007 Households Income and Expenditure survey, we estimate four different specifications of demand systems for Colombia, namely, the Linear Expenditure System (les), the Extended Linear Expenditure System (eles), the Almost Ideal Demand System (aids) and the Quadratic Almost Ideal Demand System (qaids). We also calculate expenditure, income and price elasticities for different groups of goods. We find that the expenditure elasticity of food has remained stable over time, between 0.71 and 0.77 over all urban households. In contrast, comparing households across quintiles of income, that elasticity varies between 0.58 and 0.85. This finding has to be taken into account in the design of public policy. Health, education and transport are no longer luxury goods but either unitary expenditure- elasticity goods or necessity goods, depending on the system used to estimate the elasticities. The reduction on the expenditure elasticities of these goods reflects the policies implemented in Colombia in the last decades.