Estimating income elasticities of household expenditures on essential and non-essential goods and services across different income classes in the Philippines

Date

6-2025

Degree

Bachelor of Science in Economics

College

College of Economics and Management (CEM)

Adviser/Committee Chair

Jefferson A. Arapoc

Committee Member

Maria Luisa G. Valera, Gideon P. Carnaje, Maria Angeles O. Catelo

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Abstract

Income inequality continues to affect household spending in the Philippines. While Engel’s Law explains income-expenditure patterns, few studies clearly differentiate essentials and non-essentials across income groups. This study estimates income elasticities for both categories across income classes using data from the 2023 Family Income and Expenditure Survey–Labor Force Survey (FIES–LFS) merged dataset.

Descriptive statistics, econometric analyses (OLS, Tobit, and Two-Part), and ANCOVA were employed to analyze spending patterns and differences in income elasticity. Results show that food consumed at home and non-alcoholic beverages are essential and inelastic across all income groups. Housing utilities, although descriptively non-essential, also exhibited consistent inelasticity. Health and communication were highly elastic for lower- and middle-income groups but more essential for higher-income households, highlighting access disparities. Non-essentials—like food consumed outside and alcoholic beverages, clothing, furnishings, and other expenses—were elastic at lower classes but inelastic at higher-income households, suggesting a saturation effect. Education remained highly income-elastic across all groups, indicating low overall prioritization.

ANCOVA results show significant variation in spending across income groups. However, elasticities of health, communication, food consumed outside and alcoholic beverages, education, transportation, clothing and footwear, and other expenditures have no significant difference among higher-income classes—further supporting the presence of a saturation effect.

Language

English

LC Subject

Cost and standard of living, Elasticity (Economics), Income

Location

UPLB College of Economics and Management (CEM)

Call Number

LG 993.5 2025 E2 C33

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Document Type

Thesis

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