Hong Kong's Consumption Function Revisited

This paper revisits the relationship among consumption, income and wealth using Hong Kong data. We find that the permanent income hypothesis is weakly supported by Hong Kong¡¦s consumption data prior to 1997, but it is not supported for the sample period after 1997 and the whole sample period spanning from 1984 to 2006. Furthermore, we find that both anticipated and unanticipated income and wealth effects have influences on Hong Kong¡¦s consumption. While temporary tax changes may have some impact on consumption of durable goods, the evidence that they also affect overall consumption remains limited.