Aggregate income elasticities overestimate individual spending habits, impacting economic policies.
The article explores how people's spending habits change when their income changes. It shows that the overall effect on spending is not just the average of how individuals react. The difference depends on how different people are from each other. By studying data from the U.K., the researchers found that the combined effect of income changes on spending tends to be higher than what you would expect by just looking at individual reactions.