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Journal of Advances in Economics and Finance
JAEF > Volume 4, Number 3, August 2019

Modelling the Response of Private Consumption to Income: Evidence from ECOWAS Countries

Download PDF  (295.8 KB)PP. 109-116,  Pub. Date:July 18, 2019
DOI: 10.22606/jaef.2019.43003

Author(s)
Yaya KEHO
Affiliation(s)
Ecole Nationale Supérieure de Statistique et d’Economie Appliquée (ENSEA) Abidjan, 08 BP 03 Abidjan 08, Côte d’Ivoire
Abstract
This study investigates the relationship between consumption and income from the Absolute Income Hypothesis perspective for the Economic Community of West African States (ECOWAS). As a modelling strategy, we use the Common Correlated Effect Mean Group (CCEMG) estimator that deals with both slope heterogeneity and cross-sectional dependence. The results show that consumption strongly depends upon current income in all the countries, thereby providing support for the Keynesian theory of consumption. The results also reveal heterogeneity in the elasticity of consumption with respect to income. Therefore, tax reductions may be a good instrument to stimulate household consumption in ECOWAS countries.
Keywords
Consumption, GDP, absolute income hypothesis, ECOWAS
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