ARE SERVICES INCOME-ELASTIC - SOME NEW EVIDENCE

The hypothesis that the demand for services is income-elastic tended t o find support in early empirical work. Recent studies however, adopti ng improved methodologies and better international data (based on PPP exchange rates), have challenged this conventional wisdom. Using an up dated, disaggregated dataset covering 60 countries in 1980 this paper re-estimates income and price elasticities of demand for services. It rejects the income-elastic argument overall but confirms a wide range of income elasticity estimates (above and below unity) across differen t types of services. Estimates are also shown to be sensitive to the a priori model of service demand.