Consumer demand structure and household expenditure in Russia

The article examines the structure of consumer demand among Russian households using a two-stage Almost Ideal Demand System (AIDS) model. The model assumes that households allocate their consumption expenditures in two stages. First, they distribute total spending across three broad product groups — food, non-food goods, and services — and then allocate expenditures across more detailed categories within each group. The study estimates elasticities for all aggregate and disaggregated product groups. Overall, the results are consistent with theoretical expectations. Tourism, alcohol, automobiles, and eating out are classified as “luxury goods”, whereas most food and non-food items, as well as basic services, fall into the category of “necessities”. The analysis also identifies products with anomalously low income elasticities, indicating their essential nature and the weak dependence of demand for these goods on households’ current level of well-being. The article shows that, given this structure of consumption, the model parameters are stable, while in the consumption of non-food goods and services the income effect dominates. In addition, for each food product, the study examines the effect of a price increase on the prices of substitute goods, decomposing this response into income and substitution effects. Three types of reactions are identified: local substitution amid an overall contraction of expenditures, weak adaptation dominated by the income effect, and more complex interrelations involving elements of substitution. Finally, the article develops a scenario-based allocation of additional consumer expenditures that takes into account the macro-level objectives of public policy.

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