Income Distribution and the Aggregate Consumption Function

Abstract

Household consumption propensities are related to income above subsistence levels. Aggregation over households makes the total propensity depend on income level, concentration, and asymmetry; distributional effects interact with income per capita. Estimates using both nominal and real incomes and distributional data from 101 surveys in over 30 countries show no significant effect of inequality on consumption. Reasonable estimates are obtained for subsistence income ($300 real) and the asymptotic consumption propensity (0.70-0.75) using only income level. Either distributional effects are weak or the available data are inappropriate; a correct specification would require data on income per head within households.