Habits, Rule-of-Thumb Consumption and Useful Public Consumption in Sub-Saharan Africa: Theory and New Evidence
Date
2023
Authors
Francois, John Nana
Journal Title
Journal ISSN
Volume Title
Publisher
African Economic Research Consortium
Abstract
I derive and estimate a structural consumption model for a panel of 34 sub-Saharan
Africa countries from 1960–2018 to uncover three important aggregate consumption
behaviours: habit formation, rule-of-thumb consumption and the complementarity
of government consumption in private utility. The following findings emerge: (1)
There is evidence of habit formation in consumption. (2) Approximately 38% of
consumers follow the rule of thumb of consuming their current income. This rule of-thumb consumption behaviour in the data is driven by the period before the
mobile money era that emerged post-2000s. (3) Public consumption complements
private consumption in an Edgeworth-Pareto sense. This suggests that increases in
government consumption can stimulate aggregate demand via a positive marginal
utility channel.
Description
Keywords
Habits; Edgeworth complementarity; Rule-of-thumb agents; Fiscal and monetary policy; sub-Saharan Africa