An Empirical Comparison of Functional Forms for Engel Relationships

The functional form used to represent expenditures or consumption as a function of income and household size (Engel relationship) dramatically affects estimates of elasticities of these variables. This impact also holds true when the elasticities are computed at the mean of the sample used. When per capita expenditures were expressed as a function of per capita income, the double-and semi-log functional forms provided the best statistical fit. When expenditures were expressed as a function of household size and income, the quadratic functional form provided the best statistical fit.