Structural Change and the Kaldor Facts in a Growth Model With Relative Price Effects and Non-Gorman Preferences
Econometrica · 2014 · Volume 82 · Issue 6
Abstract
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.
Keywords
Structural change, structural transformation, relative price effect, non-Gorman preferences, Kaldor facts
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