Projection of household-level consumption expenditures in a macro-micro consistent framework

• We propose a novel method for projecting/updating household-level consumer expenditures, incorporating aggregate consumption trends and age-specific demographic changes. • Use of outdated microdata may overestimate climate policy costs and compensatory benefits. • Macro-micro data inconsistencies may bias distributional analysis, overstating regressivity and progressivity of policy impacts. • Results highlight the importance of accounting for changes in population age structure. • Consumer expenditure projections are useful for uncertainty analysis. This paper presents a new approach for projecting (updating) household-level consumption expenditures in line with the existing macro-projections on aggregate consumption and demographic dynamics. Our macro-micro modelling exercises reveal that the use of outdated microdata could lead to an overestimation of direct climate policy costs as well as benefits from compensatory measures. In terms of distributional impacts, using unadjusted microdata may overstate the regressivity of costs and the progressivity of after-transfer welfare impacts. Our analysis of inequality dynamics underscores the relevance of accounting for changes in the population age structure. Overall, the results highlight the importance of using fully consistent macro and micro datasets in policy evaluations. The study further emphasizes the value of producing consumer expenditure projections to quantify the relative uncertainties (robustness) of results in relation to (un)expected shifts in household consumption patterns, assessments of different policy instruments, and comparisons of diverse policy-relevant metrics.