Keywords: linear expenditure system, constant elasticity of substitution, calibrated demand functions
JEL codes: C55, D11, D12
Abstract
We reformulate the Stone-Geary utility function to incorporate non-unitary elasticities of substitution. We show that this extended linear expenditure system includes the standard Stone-Geary case but eliminates some of its restrictions. In particular, and most significantly, the proportions of expenditure over leftover income become price responsive under the extended demand system.
