Unpacking Household Engel Curves

Abstract Acknowledging that decision making does not happen at the household but at the individual level, can household Engel curves be safely estimated based solely on household-level data? Answering this question requires considering the intra-household Engel curves (IECs) and assessing how estimates of such IECs relate to standard household Engel curves estimates. Aggregating the IECs to the household level reveals confounding factors in standard household Engel curves, including intra-household inequality. A unique data set for Senegal is used to estimate IECs. Large discrepancies are found between the standard estimates of Engel curves and the consistently aggregated IECs. The main source of the discrepancy is a household fixed effect on intra-household spending behavior, which is only partially offset by differences in intra-household inequality. Results suggest that income elasticity of food consumption might be overestimated by as much as 43 percent by the standard household Engel curve estimation.