Publications Empirical Studies KYN - SLAMA: MACROECONOMIC CONSUMPTION FUNCTION FOR CZECHOSLOVAKIA
1

Primary distribution of NI:

(17a)

Y  =  w + z + v

(l7b)

W  =  w'Lu = w'Gq

(17c)

Z = z'q

(17d)

V = v'c

where
W

is aggregate wage income

Z

is aggregate profit of firms

V

is aggregate turnover tax

w', V', Z', c, q, L, G

are vectors or matrices defined in (6), (8), (9), (12) and (13)

u

is the summation or unit vector.

2

The meaning of the primary distribution of national income is evident from eq. (17a) to (17d). We shall skip the redistribution and go directly to the final use of national income.

Final use of NI:

(18a)

Y = CS + I + G

(18b)

CS    =   p'c

(18c)

I = p'i

(18d)

G = p'g

where
CS

is the aggregate supply of consumer goods priced at retail prices

I

is aggregate investment

G

is the aggregate value of final product used for other purpose then consumption and investment

p, p, c, i, g

are vectors as defined in (6), (12) and (13).

3

The balance sheet of money incomes and expenditures of the population reflects the formation and use of disposable income.

Formation of disposable income:

(19)

YD = W + R - T

where
YD

is the disposable income of the population

W

is wage income from the primary distribution of national income

represents other money incomes of the population created in process of the redistribution of national income

T

are taxes and other deductions from the money income of population paid to the state budget or social organizations.

4

Use of disposable income:

(20a)

YD = CD + S

(20b)

CD = p'cD

where
CD

represents money expenditures of the population on purchases of consumer goods

S

represents aggregate saving.

5

It is necessary to point out that the formation of disposable income is fully under the control of planners because they determine the aggregate wage income W (by fixing the wage rates w and the allocation labor L) as well as other incomes R and taxes T.

On the other hand use of disposable income, that is its division into consumption expenditures and saving, depends primarily on consumer behavior and can be influenced by planners only indirectly.

Overall aggregate balance in the economy requires that consumer demand be equal to the supply of consumer goods:

(21)

CD = CS

6

This equilibrium can be achieved provided planners know the behavioral pattern of consumers and are able to predict with sufficient precision how much of disposable income will be saved.

We conjecture that consumer behavior under Soviet-type socialism does not differ much from that under market capitalism. We therefore regard CD as a function of disposable income and possibly some other variables.

(22)

CD = CD(YD,...)

7

This is what we call the consumers' consumption function.

Unlike in the case of a market economy, we cannot assume that in the Soviet-type economy the supply of consumer goods is automatically adjusted to demand; rather it is determined by planners, simultaneously with investment, when they plan the final use of national income. We can conjecture that the planners' target for the aggregate supply of consumer goods depends on the level of national income and possibly on some other variables.

(23)

CS = CS(Y,...)

8

This is the planners' consumption function.

The submodel consisting of eq. (21), (22) and (23) is identified and therefore both the consumers' consumption function (22) and the planners' consumption function (23) can be estimated. Clearly, this possibility depends in a crucial way on the assumption that the equilibrium condition (21) holds at least approximately.

For example, if CS were smaller than CD, then observed purchases would be equal to the supply of consumer goods, CD would be unobservable, and involuntary savings would appear. In such a case, the consumers' consumption function would not be estimable. In the opposite case, CS would be unobservable, stockpiling of unsold consumers goods would appear, and the planners' consumption function could not be estimated.

9

In the remaining part of this paper we shall present estimates of both consumers' and planners' consumption functions for Czechoslovakia.

The data for the planners' consumption function are taken from the official statistical yearbook while the data for the consumers' consumption function6 are taken from the study of Janacek (1972), because disposable income is not normally published in statistical yearbooks. Unfortunately, these two sets of data are not fully compatible, because the first contains only annual data in constant prices while the second contains both annual and quarterly data in current prices. Both equations were estimated only by single equation methods and no attempt was made to correct the estimates for simultaneity bias.

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