HOUSEHOLD DEMAND ANALYSIS: EVIDENCE FROM PAKISTAN USING POOLED DATA

Abstract

This study consists of three essays on household demand with the aim to address some key issues related to resource allocation and policy making in public domain. The first essay explores the presence of systematic differences in household demand between rural and urban areas and, especially between the four provinces of Pakistan. The findings of this essay lead to the conclusion that in the light of controversies surrounding the Eighteenth Constitutional Amendment, major portions of goods and services taxes that are not of uniform nature may be redesignated as provincial taxes. The structure of these taxes may be decided by provincial governments keeping in view the prevailing demand patterns and other socioeconomic considerations. The second essay explores the role of climatic conditions represented by geographic zones, seasonal variations and interaction between climate and seasons in influencing household demand. The study finds systematic differences in household demand and their seasonal patterns across climatic zones. It is proposed that the knowledge of these differences may be included in decision making in public domain to help smooth supply of essential goods, especially to ensure food security. The third essay focusses on the role of large changes in income in influencing households’ preference structure. The study proposes to extend Quadratic AIDS to Quadratic AIDS Splines that allow smooth transition of household demand functions from one range of income to the next one. The study finds significant differences in household demand patterns at extreme ends of income distribution. This result leads to the conclusion that the practice of focusing on the so-called average behavior can be misleading in the context of socioeconomic policies. The information on changes in consumption pattern across income classes, especially at extremely low income levels can be fruitfully utilized for making pricing and taxation policies, especially to ensure food security and provision of essential goods like health to poor households