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Short Run Income Elasticity of Demand for Residential Electricity Using Consumer Expenditure Survey Data

This study provides information on the relationship between income and electricity consumption based on the Consumer Expenditure Interview Survey (CE) of the Bureau of Labor Statistics, U. S. Department of Labor. The income elasticity of short run demand for residential electricity is estimated using household panel data for homeowners. The CE is rich in its coverage of household characteristic data, housing characteristic data, and appliance inventory data. This makes it possible to model electricity demand across areas in the United States more comprehensively than has been done in a number of earlier studies. The results, obtained using a generalized least squares estimator (GLS), include an income elasticity of demand for electricity of 0.23 and a price elasticity of -0.20. The GLS estimator is used because OLS estimates are inefficient due to the correlation of the errors which arises from the use of panel data.

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Energy Specializations: Electricity – Markets and Prices ; Electricity – Policy and Regulation

JEL Codes:
D42 - Market Structure, Pricing, and Design: Monopoly
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General

Keywords: Residental electricity use, GLS estimator, Consumer expenditure survey, Income elasticity

DOI: 10.5547/ISSN0195-6574-EJ-Vol14-No4-7

Published in Volume14, Number 4 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.