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NATIONAL BUREAU OF ECONOMIC RESEARCH

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NBER Working Papers and Publications

November 2007Revisiting the Income Effect: Gasoline Prices and Grocery Purchases
with Justine Hastings, Sofia Villas-Boas: w13614
This paper examines the importance of income effects in purchase decisions for every-day products by analyzing the effect of gasoline prices on grocery expenditures. Using detailed scanner data from a large grocery chain as well as data from the Consumer Expenditure Survey (CES), we show that consumers re-allocate their expenditures across and within food-consumption categories in order to offset necessary increases in gasoline expenditures when gasoline prices rise. We show that gasoline expenditures rise one-for-one with gasoline prices, consumers substitute away from food-away-from-home and towards groceries in order to partially offset their increased expenditures on gasoline, and that within grocery category, consumers substitute away from regular shelf-price products and towards prom...
 
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