Private Consumption

Private consumption is defined as the value of the consumption goods and services acquired and consumed by households. The totals correspond to personal consumption expenditure as reported in NIPA with several possible adjustments.

Allocation Rules (DRAFT)

Private consumption by age requires that household consumption be allocated to household members using allocation rules. Based on our assessment of the literature, discussions with experts in this area, and extensive application of alternative procedures to data from different countries, we are employing a relatively simple but transparent method for allocating consumption.

1. Education and health expenditure are allocated directly to household members. In a few surveys, expenditures are collected for individuals. In these cases the allocation can be accomplished directly. More typically only household totals are available. Both are allocated using a simple regression technique. Education expenditures are regressed on the number of ENROLLED household members in each age group; single years of age are used if the sample size permits. The regression equation is used to predict each enrolled member's share of its household's education expenditure which, when multiplied by the household's total education expenditure, yields the expenditure allocated to each household member. The predicted share is used to insure that all household expenditure is allocated to a household member. Health expenditure is estimated in similar fashion except that total household expenditure is regressed on the number of household members in each single year age group. If appropriate individual-level indicators are available it may be possible to estimate richer models of health and education expenditure.

2. All other household consumption is allocated using an equivalent adult scale that is identical for all countries. Based on our survey of the literature we assume that the average equivalence value for children 0-14 is 0.5, for adults aged 15-59 is 1.0, and for adults 60+ is 0.8. Rather than use an equivalence scale with discrete jumps, however, we use a continuous scale that rises with age up to 15 and then declines with age after 60+. The scale is proportional to estimates of kilocalories consumed from US surveys.

Equivalence scales mostly from Mueller

Mueller, E. (1976). The Economic Value of Children in Peasant Agriculture. Population and Development: The Search for Selective Interventions. R. Ridker. Baltimore, MD, Johns Hopkins University Press: 98-153.

Age-profile of US Kilocalories

Consumption of Services from Housing and Durables

Expenditures for the purchase of homes and durables should not be included in private consumption. The services provided by these goods are consumed over time and can represent an important form of inter-temporal transfers. We need to estimate the services provided by these goods. For housing services, we might use the rental equivalent of own home which is reported in the U.S. CEX. We might estimate service from durables based on the value of durables owned by the household times the sum of the interest rate and the depreciation rate. Once the value of services is estimated, these need to be allocated among all household members. (Perhaps using the allocation rules outlined above). For consistency, we should be sure that we are allocating services from owned housing in the same manner as we treat expenditures on rent.