The Distribution of Consumption-Expenditure Budget Shares. Evidence from Italian Households

This paper explores the statistical properties of household consumption-expenditure bud- get share distributions – defined as the share of household total expenditure spent for purchasing a specific category of commodities – for a large sample of Italian house- holds in the period 1989–2004. We find that household budget share distributions are fairly stable over time for each specific category, but profoundly heterogeneous across commodity categories. We then derive a parametric density that is able to satisfacto- rily characterize (from a univariate perspective) household budget share distributions and: (i) is consistent with the observed statistical properties of the underlying levels of household consumption-expenditure distributions; (ii) can accommodate the observed across-category heterogeneity in household budget-share distributions. Finally, we taxono- mize commodity categories according to the estimated parameters of the proposed density. We show that the resulting classification is consistent with the traditional economic scheme that labels commodities as necessary, luxury or inferior.